Updated: 11/2/2011 11:33 AM ET|
How to find a car's 'real' price
Actual dealer cost is elusive, and the 'invoice price' is just one clue. But you can get an idea of dealer cost, and that will help in negotiating the price you pay.
Most new-car shoppers know that if you pay invoice price for a vehicle, you're getting a bargain. But does that mean the dealer makes no money on the sale? And how can dealers sell cars below invoice, as they often do?
The true dealer cost is decidedly less than the invoice price, although exactly how much a dealer pays a carmaker for a vehicle is an elusive figure. We set out to determine the true dealer cost.
Numbers hard to pin down
"The auto industry is the only business in which the term 'invoice' doesn't actually define cost," says Jesse Toprak of TrueCar, an automotive-data company.
For example, an invoice price does not reflect the so-called holdback, a discount a dealer gets from a manufacturer that the dealer uses to help pay the cost of financing its cars. Dealers may also get cash from manufacturers to move certain models. The thinking is that dealers know the best way to close sales, and they can use any or all of the cash to get the deal done.
"If you know the incentive exists," Toprak says, "you'll likely get 100% of it."
TrueCar can tell you if that incentive exists. The site lists the holdback and dealer incentives in its price report for each vehicle. The report, which is free, also shows the site's best estimate of the actual dealer cost, the higher, factory-invoice price and the average price that buyers are paying.
Say you're shopping for a Volvo V70 wagon. The sticker price is $34,400, and the invoice price is $32,887. But TrueCar's "TrueCost" is $4,000 below invoice, at $28,887, after subtracting $1,000 for the holdback and $3,000 for a dealer incentive.
Dealers may also benefit from other carmaker-to-dealer kickbacks, such as carry-over (for selling last year's models to make room for new inventory), volume bonuses (for moving a lot of cars) and customer-satisfaction bonuses (for high scores on customer surveys).
Knowing the dealer's actual cost and potential profit can help you drive home a bargain because you know the lowest price you could realistically ask for.
But to get the best deal, make dealers compete for your business. "You don't need to be an expert," says Robert Ellis of CarBargains, the car-buying service of the nonprofit Consumers' Checkbook organization. Pit dealers against each other; all the dealers in your area will be working with the same holdback and dealer cash incentives.
You can follow CarBargains' strategy yourself: Approach several dealerships but ask to speak with managers. They know the bottom line better than the salespeople do and care more about volume than commission. Solicit bids from them by phone or via email. Use the invoice price of the vehicle and options you want to compare deals. Or, for $200, CarBargains will get bids from five dealers in your area on the car you specify.
Good fees, bad fees
Legitimate fees are listed on factory invoices, which the dealer should share with you. These are fees that the dealer has to pay to the manufacturer and is passing along to you, including the destination fee (the cost to transport the vehicle to the dealer) and the carmaker's regional advertising fee. TrueCar includes this in its invoice and TrueCost figures. You may also be stuck with administrative fees and fuel charges if they're listed.
A few fees inhabit a gray area -- you'll likely have to pay them, but you might be able to negotiate. One example is the document fee: Some states regulate it, others don't. Find out what other dealers charge; the dealer may reduce its fee to match the local competition.
Some fees you should never pay because they are part of the cost of doing business. They include floor-plan fees (the cost to hold inventory at the dealership) and vehicle-preparation fees (for cleaning, removing plastic and checking fluids). Any fee listed only as an abbreviation should raise a red flag. If it doesn't show up on the factory invoice, don't agree to pay it.
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