Figure a Fair Profit Offer on a New Vehicle
How to figure a fair profit new car offer on any new car, truck, minivan, or SUV before contacting a car dealership.
New car buying tips in this section:
- What you must take in consideration when calculating a fair profit new car offer.
- How to figure a fair profit new car offer.
- How to calculate a new car offer with a factory to dealer incentive.
- Step-by-step examples on how to figure a fair profit new car offer.
- How to use your calculated fair profit offer as a powerful negotiating tool
What you must take in consideration when figuring a fair profit new car offer:
- Manufacturer to customer rebate programs
- Manufacturer to dealer incentive programs
- Dealer Holdback
- Factory added options
- Dealer added options (may or may not be removed by the car dealer)
Fees that must be paid by you and should only be added after you've figured your new car offer:
- Destination fee
- Tax, title, and license fees
- Any unavoidable state or government fees required by law
Before you can calculate a fair profit new car offer, you must first find the car dealer's true cost of the new car you're wanting to buy. You can do this by reading our section on how to figure a car dealer's true new car cost here.
How to Calculate a Fair Profit New Car Offer
Once you have figured the car dealers cost, the formula for figuring a fair profit new car offer is relatively easy. Customer rebates, factory to dealer incentives, and dealer holdback will vary between manufacturers. Below I will show you how to find all this information on whatever type of new car you're wanting to buy.
The formula to finding a dealer's true net cost on any new car is:
Invoice Price - Dealer Holdback - Factory to Dealer Incentive = Dealer's True Cost
Car dealer's will advertise factory to customer rebates publicly. However they normally keep the factory to dealer incentives private and to themselves. To help you calculate your offer on any new vehicle, you can find the latest and most current information on factory incentives for customers and dealers at Edmunds.com.
How to get Car Dealers to Compete Online!
Let's say you've found a car you would like to buy. The total MSRP of the car is $31,000.00 and the invoice is $29,000.00. You find out the dealer holdback on the vehicle is 3% of invoice which is $870.00. While doing a little more research you find there's a $2,500.00 secret factory to dealer incentive available on the car, this is to help the dealer move the car off the lot to make room for the newer models. The true dealer's cost of this car is:
How to calculate a fair profit new car offer with a factory to dealer incentive:
|$31,000.00||=||MSRP of new car|
|$29,000.00||=||Invoice of new car (You must include the invoice cost of any factory added options)|
|$870.00||-||Subtract dealer holdback (3% of MSRP *amount varies per manufacturer|
|$2,500.00||-||Subtract dealer incentive ($2,500.00 factory to dealer incentive)|
|$25,630.00||=||True dealer's net cost|
Walking into a car dealership and offering them $100.00 over invoice on the above car will save you $1,900.00. Congratulations, that's a lot of money you saved negotiating that deal. You may even get to hear the same old song and dance from the dealer, "You're stealing the car from us," or better yet, "I've never seen my Manager sell a car this cheap, you really know what you're doing."
Don't fall for the BS, it's all an act and we car dealers are very good at it. After haggling with the car salesman you may think you really received a good deal, saving $1,900.00, but you left $2,444.80 on the table. Not only did you leave all that money on the table, but you're also going to pay tax and interest on the profit you left for the car dealer.
As I've stated in my section How Much Should I Pay for a New Car. I'm not teaching you how to steal a new car from a dealership, I'm showing you how to buy a car from a dealer at a fair price and not becoming a victim.
Now let's add the 3-5% fair profit amount to the dealer's true cost. I'm using 4% for my examples. The goal is to not pay more than 5% profit on your new car. Using 3% will give you and the dealer a little "wiggle room" for negotiating. If you decide to use 3% for your offer, make sure you know what the 5% profit margin is so you can stay within your goal.
|$25,630.00||=||Dealer's true net new car cost|
|$1,025.20||+||4% fair profit offer (Dealer's true net cost x 4%)|
|$26,655.20||=||Your total fair profit new car offer|
If you buy the car at your fair profit offer of $26,655.20 you will save $4,344.80 off MSRP instead of only $1,900.00. This is why you don't want to buy a new car like you're parents did.
But wait there's more... What if there's a dealer incentive and a manufacturer to customer rebate available on the car you want to buy. You're entitled to it also.
Invoice - Holdback - Dealer Incentive = Dealer's Cost - Customer Rebate x 3-5% = Your Offer
CAUTION: When calculating your fair profit new car offer to the car dealer, DO NOT INCLUDE the destination charge, state required fees or any other changes. The destination fee and any other fees you've agreed to pay will be added AFTER you calculate your offer.
Your offer $26,655.20 + $720.00 (destination fee) = $27,375.20.
The destination fee is a fee added to the MSRP of the vehicle by the manufacturer. You will see the fee on the Monroney Sticker on the side of the vehicle. The destination fee is usually located right before the total MSRP of the car. This fee is passed straight to you and is your responsibility. Keep an eye out for car dealers that try and "double-dip" you on this fee and try to charge you twice for it.
How to get Car Dealers to Compete Online!
Your fair profit new car offer before destination fee or any other charges is $26,655.20. This offer is well below the $100.00 over invoice of $29,100.00 an uneducated car buyer would offer. However, smart car buyers like yourself need those uneducated buyers so you can get a bigger discount when you buy a new car.
The invoice offer of $29,100.00 before any fees saved $1,900.00 off of MSRP. Your offer of $26,655.20 before fees save you an incredible $4,344.80, not to mention taxes and interest saved on that amount also. That's a difference of $2,444.80 between you reading this website or just shooting from the hip stating, "I'll pay $100.00 over invoice."
Sometimes your offer may be well below a new car's invoice and sometimes it may not. Certain factors such as the car, rebates, and incentives available will affect the outcome of your offer.
You will always want to compare your fair profit offer with free new car price quotes from our recommended online companies such as TrueCar, Yahoo Autos, Edmunds.com, CarsDirect, and Automotive.com. Doing this will not only let you know how "in demand" the car you're wanting to buy is, it will also tell you which local dealers in your area are more willing to negotiate.
Examples of Calculating a Fair Profit New Car Offer
Calculating an offer with no incentives or rebates:
For this example you would like to buy a 2012 Ford Mustang coupe. Go to Edmunds.com, look up the car, select your options and find the MSRP. The MSRP is $22,145.00 before the destination fee and the invoice price is $21,093.00. You can get the dealer holdback amount here also, or you can find it on my car dealer holdback chart. You find the holdback amount is 3% of the total MSRP or $664.35.
Calculate fair profit new car offer with no rebate or incentive:
|$22,145.00||=||MSRP of new car|
|$21,093.00||=||Invoice of new car (You must include the invoice cost of any factory added options)|
|$664.35||-||Subtract holdback (3% of MSRP *amount varies per manufacturer|
|$20,428.65||=||Dealer's true net new car cost|
|$817.15||+||4% fair profit (Dealer's true cost x 4%)|
|$21,245.80||=||Your calculated fair profit new car offer|
Calculating an offer with a customer rebate and factory to dealer incentive:
This time you're looking to buy a 2010 Hyundai Elantra GLS. Go to Edmunds.com and enter your desired options. You find the MSRP before the destination fee to be $19,900.00. Invoice price with options on the car is $16,461.00. Now calculate the holdback amount of 3% of total MSRP which is $597.00. Let's see how this one breaks down.
|$19,900.00||=||MSRP of new car|
|$16,461.00||=||Invoice of new car (You must include the invoice cost of any factory added options)|
|$597.00||-||Subtract holdback (3% of MSRP *amount varies per manufacturer|
|$1,000.00||-||Subtract dealer incentive ($1,000 factory to dealer incentive)|
|$14,864.00||=||Dealer's true net new car cost|
|$594.56||+||4% fair profit offer (Dealer's true cost x 4%)|
|$1,500.00||-||Subtract customer rebate ($1,500.00 customer rebate)|
|$13,958.56||=||Your calculated fair profit new car offer|
How to use Your Fair Profit New Car Offer as a Powerful Negotiating Tool
Now that you've figured your fair profit new car offer. Go to all of our recommended automotive research web sites such as TrueCar, Yahoo Autos, Edmunds.com, CarsDirect, and Automotive.com to request free new car price quotes on the vehicle you're interested in buying. This will let you know which car dealer's in your local area are the most aggressive in discounting the car you want to buy.
You can use your calculated fair profit offer to compare against the quotes you receive. You can read more on how to start a low new car price bidding war in our section on How to Get Car Dealer's to Compete Online. Using this type of technique will guarantee you pay volume Internet discount pricing on your next new car purchase.
Receiving online price quotes will give you an idea of how much car dealers are discounting the model of car your wanting to buy. Quotes also contain a lot of information that will help you calculate a fair offer. I've also had many readers tell me they've received deeper discounts than what they calculated themselves.
Combining your free online quotes and your calculated offer is a very effective way to work dealerships against each other to get a low price when buying your next new car. Read our section on how to negotiate with car dealerships by email to learn more.
I'll admit I've sold many cars under my true cost just to hit a manufacturer's quota, or receive a bonus with a lot more than what I lost on just a single car sale. I've also sold new cars under my true cost because I was tired of looking at it on my lot. You never know what kind of mood a car dealer is in or what they just might do to sell a car.
By calculating a fair profit new car offer, you will know what your target goal is for what you should pay for your next new car, truck, minivan, or SUV. Taking the time to figure what the dealer's true new car cost is and adding a fair profit will let the dealer know you've done your research and are ready to buy a car without any games. Your goal is to pay as close to the amount you've figured to guarantee you pay the absolute lowest price available.
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