Factory Invoice is not a Car Dealer's True New Car Cost

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This section will provide you with the information you need to determine the car dealer's actual cost of any new car you decide to buy. Armed with this information will allow you to know the exact cost of the car you're wanting to buy.

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New car buying tips in this section:

Why you should never offer to pay factory invoice price for a new car.

Many car buyers believe a new car's factory invoice is the bottom line a car dealer will sell a new car for, this is not true! Car dealers want you to believe this myth. Truth is, hundreds of cars are sold well below a new car's invoice price every day.

Car dealer's and their salesmen love when someone walks into a dealerships with their chest all bowed up and shouts something like, "I'll buy that car for $300 over the invoice price and not a dime more or I'm walking!"

When you walk through the door of a car dealership and make a statement like above. You're letting everyone in the dealership know you're a weak negotiator and don't have a clue what you're doing. Sales people will be killing each other to be the one to sell you a car.

Don't get me wrong; paying factory invoice price for a new car is a lot better than paying full MSRP. However, if you pay a new car's invoice price for you next new car, truck or SUV. You may still be giving away a lot of your hard-earned money to the dealership.

There may be several other discounts available to you but not offered since you stated you wanted to pay $300 over invoice.

Dealer holdback, customer rebates and factory to dealer incentives may be available.

Some new vehicles have dealer holdback, customer rebates and factory to dealer incentives available. A dealer will most likely not offer these discounts to you up front. If you're unaware of these types of discounts the dealer will make more money when selling you a car. (Dealer holdback is NOT a discount but it is additional money many car dealers will negotiate.)

Some dealer's will negotiate these amounts with you when buying a new car. However most dealers will not come right out and tell you the vehicle you're looking to has one of these special programs available.

You should familiarize yourself with these added savings to guarantee you pay the lowest price. After researching any additional discounts available to you, read our section on how to figure a fair profit new car offer.

After figuring your fair profit offer, you can use it as a base for your negotiations. You can also use it to compare with free online price quotes sent to you by dealers to make sure you're not paying too much for your next new vehicle.

What is a Factory to Dealer Incentive?

One of the most elusive discounts is the factory to dealer incentive. A factory to dealer incentive is extra money the manufacturer will directly pay the car dealer to help the dealer move new cars and trucks to clear the way for the newer models.

A factory to dealer incentive may be different amounts for different makes, models or even trim lines. The manufacturer will not pay out an incentive to a dealer until the vehicle it was assigned to is sold by the dealership.

These types of incentives are not normally advertised to the public. Most of the time even the car salesman at the dealership doesn't know if there's one available. You must do your research and find out if the car you want to buy has a factory to dealer incentive available on it.

It's up to each individual car dealership if they want to share the factory to dealer incentive with you. They may give up all, some, or none of the incentive. Each car dealer is different, some may be very aggressive in discounting their prices immediately and some may be very tough to negotiate with.

Factory to dealer incentives is one of the common discounts overlooked by car buyers. Another reason why it's important to do your research before visiting a new car dealership.

Use online companies such as TrueCar, Yahoo Autos, Edmunds.com, CarsDirect, and Automotive.com to receive free new car quotes. This will give you a good idea of what the car dealers in your local area are asking for the exact vehicle you're wanting to buy. It will also give you an idea which dealers will be the most flexible on pricing.

How to get Car Dealers to Compete Online to Give You the Lowest Price!

Getting as many free online quotes up front will also let you know if the vehicle you're looking to buy is a "desirable" vehicle.

If this is the case, you may find some car dealers will be less likely to discount the vehicle at this time. It's the old negotiating rule of "Supply and Demand." Don't get frustrated, it's better to know this information now instead of wasting hours in a car dealership later. You just need to make a personal decision, how bad do you want the car?

How to Figure a Car Dealer's True Cost on a New Car

Figuring the true cost on a any new car is a simple formula:

Invoice Price - Factory Holdback - Factory to Dealer Incentives = Dealers Net Cost

How Factory Incentives Work:

Factory Incentive Example
$22,239.00 = MSRP of new car
$20,839.00 = Invoice price of new car
$444.00 - Subtract dealer holdback (2% of MSRP *amount varies per manufacturer)
$1,000.00 - Subtract dealer new car incentive ($1,000 factory to dealer incentive)
$19,449.00 = True dealer's net new car cost

$19,449.00 is a lot less than the invoice price of $20,893.00. It's a $1,444.00 difference to be exact. That adds up to about $35.00 extra a month to your car payment after tax and interest is added.

So if you bought the above vehicle $300 over invoice. You would save $1,346.00 off MSRP and would consider you got you yourself a good deal.

The car dealer would still make at least $1,744.00 profit from you just off the selling price of the vehicle itself. That translates to $48.44 a month for 36 months at 0% out of your pocket.

Is this excessive profit for the car dealer? Personally I don't believe so, but I'm a dealer. That's for you to decide.

You may not be able to get the whole amount when it comes to dealer incentives. If you can only get half of it. You're still saving money. Each dealer is different. If the first one won't negotiate it, try a different one.

I've seen factory to dealer incentives on some brands as high as $8,000.00 or more to help dealers move their old new car inventory so they can get the newer models on the lot. If you happen to be interested in a car with an incentive attached to it like that. You may be able to get a huge discount when buying your next new car.

Here's another factory incentive example:

Factory Incentive Example #2
$29,897.00 = MSRP of new car
$27,593.00 = Invoice price of new car
$897.00 - Subtract dealer holdback (3% of MSRP *amount varies per manufacturer)
$1,750.00 - Subtract dealer new car incentive ($1,750 factory to dealer incentive)
$24,946.00 = True dealer's net new car cost

Let's say you received a great deal and bought the above car for $300.00 UNDER invoice for $27,293.00. You saved $2,604.00 off MSRP and super excited, telling everyone you talk to what a great dealership you did business with and how they're making deals. With the added factory to dealer incentive, the car dealer will still make $2,347.00 profit from selling you the car.

The $2,347.00 you could have saved translates to $65.19 a month for 36 months at 0% interest you are now paying extra. You also gave the dealership some word-of-mouth advertising, telling your friends and family how great they are to buy a car from.

Now let's take this one step further. There may also be a CUSTOMER REBATE or CASH BACK attached to the vehicle you're looking at along with a hidden factory to dealer incentive. If you choose to use your Rebate or cash back to lower the price of the car you may get an even deeper discount.

How factory incentives and customer rebates work in conjunction:

Factory Incentive and Customer Rebate Example:
$29,897.00 = MSRP of new car
$27,593.00 = Invoice price of new car
$897.00 - Subtract dealer holdback (3% of MSRP *amount varies per manufacturer)
- Subtract customer rebate
$1,750.00 - Subtract dealer new car incentive ($1,750 factory to dealer incentive)
$24,946.00 = True dealer's net new car cost

You can see in the above example that not doing your homework first can keep you from substantial savings when buying your next new car or truck.

Walking into a car dealership and buying the above car at straight invoice for $27,593.00 will save you $2,304.00 but it will cost you $4,147.00!

Finding a car dealer's true new car cost is the first step in getting the lowest price on your next new car. After finding the dealer's cost, your next step is to read our section on how to calculate a fair profit new car offer. This will give you a solid no-nonsense figure to present to the car dealer when you're ready to purchase the vehicle you want to buy.

Once you figure your fair profit offer, you can use your offer to compare against your free online price quotes you receive and be able to negotiate further if need be. You will want to pay as close as possible to your figured fair profit offer to ensure you pay the absolute lowest price for your next new car.

How to find out if the car you want to buy has a Rebate or Factory to Dealer Incentive

As they do with customer rebates and customer cash back. Car dealerships do not normally advertise factory to dealer incentives to the public and thus makes it hard for consumers to find out this information.

When looking at a print ad and you see an extremely low price advertised on a new car. You can look in the fine print and see if the dealer used the incentive to get to the price advertised. By doing this you will know there is most likely an incentive on that specific make, model, and trim of car advertised.

You can visit a site like TrueCar or Edmunds.com to find out if the new car or truck you're looking at has a rebate or factory to dealer incentive attached to it. The information found on these sites are up to date and very accurate.

Click here to see a list of all the Current New Car Rebates and Incentives listed on Edmunds.com.

Always keep in mind the factory invoice is not the true dealer's cost on a new car. Taking a little time and doing your research will save you hundreds, if not thousands of dollars when buying your next new car, truck, minivan or SUV.

How to Get Car Dealer's to Compete Online for your Business

Get the Lowest Price on Any New Car | Car Buyer's Cost Sheet Index

- Factory Invoice is not a Car Dealers True New Car Cost - When is the Best Time to Buy a New or Used Car
- How to Calculate a Fair Profit New Car Offer - How Online New Car Price Services Work
- Top New Car Price Quoting Services Reviewed - How Much Should I Pay for a New Car
- What are Factory Incentives and Customer Rebates - Dealer Holdback | Hold Back Rates | How to Figure Holdback
- How Much Money Should You Put Down on a Car? - Car Dealer's Compete Online | Create an Online Bidding War

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