Were a car dealership, and well be the first to tell you: The price you see on a dealer invoice doesnt reflect reality. Heres what to watch out for.
Lets say youre at a car dealership and youre about to score an amazing deal.
At least thats what you think.
You came in for a mid-sized SUV. Youre negotiating with a salesman who tells you:
Wait. You could go with that. But why dont you check out the next class up that bigger SUV over there. Right now were offering a killer deal its marked for less than the dealer invoice price. That means were selling it for less than we paid for it!
Suddenly your head starts spinning. Sure, I could get the car Id had in mind. But this other ones bigger and its on sale.
Heads up: That deal might not be so great after all. Heres why.
What is dealer invoice price? (Hint: Its not what you think.)
The definition of a dealer invoice price should be simple. Its supposed to show the price that a car dealership paid an auto manufacturer to buy a specific vehicle.
But heres the truth:
The price you see on a dealer invoice almost never shows what a dealer actually paid for that car.
There are many reasons why.
If you were to get your hands on a dealer invoice, youd see a line-by-line breakdown of everything within the car. Every manufacturer uses different abbreviations and terms, but some basic line items are:
- The price of the make and model before additions. (For example: A 2019 Fiesta SE Hatchback.)
- Prices for optional equipment like special tires, trims, or a cold-weather package (heated front seats, electronic air temperature control).
- The destination and delivery charge, which is what the manufacturer bills for transporting the car to the dealership.
The items will have two different numbers listed next to them. One is the actual invoice costi.e. what the manufacturer is charging the dealer. The other is the manufacturers suggested retail price (MSRP) i.e. what they say the dealer should charge you.
By the time you reach the bottom of the invoice, the gap between those figures may be a few hundred dollars. The Fiesta hatchback mentioned earlier, for example, may have an MSRP of $15,735. But Ford might invoice the dealership $15,499.
Why the difference? Every manufacturer takes the MSRP and subtracts a standard percentage when invoicing a dealer. But this number usually accounts for only a small markup.
The far bigger difference lies in things you cant see on the invoice things like allowances, discounts, and incentive awards. And thats where things can get hairy (and can ruin a seemingly good deal).
What Doesnt a Dealer Invoice Show You?
Automakers want their dealerships to move as many cars as possible. So they find creative ways to sell the vehicles for less than the invoice price.
The problem? Not all manufacturers disclose these kickbacks, including two common ones:
- Holdback. Each time a dealer sells a car to the customer, the manufacturer sends up to 3 percent of the cars invoice price or MSRP back to the dealer. This usually works out to be a couple hundred bucks per car but could be thousands on a high-priced vehicle. The dealer receives the amount in a monthly or quarterly payment later.
- Dealer Cash. When a manufacturer wants to move a certain model, it will dole out cash to dealers to sell as many of those cars as possible sometimes even at a discount.
This is why a salesperson might be especially eager to show you last years model of a bigger SUV, like we mentioned earlier in the story.
Outwardly, it seems like youre getting a great deal by paying less than whats listed on the invoice. But behind the scenes, the manufacturer is offering a big incentive to move that car off the lot.
At a traditional dealership working on a profit-based commission model, the resulting kickback would put a lot of extra cash in that salespersons pocket. Basically: They have an incentive to point you in a direction other than your best interest.
(On the other hand, at Apple Autos we dont operate on a profit-based commission model. Our salespeople get paid the same no matter what car you buy.)
By the end of that deal, youd have spent more money than you intended for a car thats bigger than you needed. That means youve also signed up for higher gas bills for the next few years. And thats not even mentioning the fact that the bigger SUV might not even fit inside your garage. (Pro tip: Always bring a tape measure when you go to a dealership. Here are other things to watch out for when you test drive a vehicle.)
How to Find the Dealer Invoice Price and What to Do With It
With all this being said, dealer invoice price can be a useful piece of data so long as you realize its not a perfectly accurate reflection of reality. To find a cars invoice price, you have a few options.
A resource that offers figures that are close to what youd find on an actual invoice is Edmunds True Market Value (TMV). It shows factory invoice prices for many makes and models, with lots of options for add-ons.
These prices may be just well-researched guesstimates. But theyll at least get you in the ballpark. Theyre good to have on hand when you head to a dealership to shop.
But heres the easiest way to get the dealer invoice price on a car specific car: Just ask the salesperson if you can see it.
Beware of one thing if you do:
If your salesperson enthusiastically fetches that piece of paper, it could mean there are some behind-the-scenes kickbacks missing from the invoice.
Your naked eye might see a clean sheet that suggests no foul play. Or the complex jargon could make it difficult to decipher at all.
The bottom line? You shouldnt put too much stock into a cars invoice price. There are many variables that affect it, its difficult to tell how true that number is.
At Apple Autos, well show you the dealer invoice price if you want. But more importantly, our salespeople have no incentive to steer you toward one car (like a bigger SUV that you dont actually need) over another.
We dont negotiate, and our salespeople are paid the same no matter what car you buy.
We offer one low price upfront on every new or used vehicle, and we show you exactly how we arrived at that price.
Our only mission is to help you drive off in a car you love.
We wish every dealership made car shopping this easy. But not all do. Which is why we assembled this list of 10 Questions You Should Ask Whenever You Buy a Car. Theyll help you get to the heart of the matter in your next car deal and do it a lot faster than seeing some number that might not be based in reality.
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