Dealer Cost vs. Factory Invoice Price
Factory invoice is what a dealer paid for the car and not the actual dealer cost of the vehicle. If you pay the factory invoice price for a new car, you may save a little bit of money, but you may be leaving a whole bunch of money on the table.
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Many car buyers believe a new car’s factory invoice is the bottom line a dealer will sell a new car for, this is not true! Car dealers want you to believe this myth, but the truth is, hundreds of cars are sold well below a new car’s invoice price every day. If you want to see for yourself, just pick any car you’re interested in buying and follow the steps in my article on how to get car dealers to compete online for your business.
If you haven’t done your homework, you will be at a disadvantage when negotiating a new car’s price with a dealership. The dealer knows the cost of the vehicle and you don’t. When buying a new car, truck, or SUV, knowing what the dealer actually paid for it will put you on a level playing field.
Car dealers and their salesmen love when someone walks into a dealership with their chest all bowed up and shouts something like, “I’ll buy that car for $300 over factory invoice and not a dime more, or I’m walking!”
When you walk through the door and make a statement like the one above, you’re unintentionally letting everyone in the dealership know you don’t have a clue what you’re doing and you’re most likely a weak negotiator. Salespeople will be killing each other to be the one to sell you a car.
Don’t get me wrong; paying the factory invoice price for a new car is a lot better than paying the full sticker price. However, if you pay the invoice for your next new car, truck, or SUV. You may still be giving away a lot of your hard-earned money.
There may be several other discounts available to you, but not offered since you stated you wanted to pay $300 over invoice. Believe me, no one in the dealership will volunteer this priceless information to help save you money. You’re taught at a dealership, “It’s them or us,” the customer saves money or the dealership makes more money from the customer being unaware of discounts.
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Some new vehicles have secret programs available to further discount the price of the car. Some of these discounts can come in the form of:
If you’re unaware of the vehicle you’re looking at has one of these types of discounts, the dealer will most likely not offer it to you upfront. If the dealer doesn’t tell you about the additional money, they have a chance to make more money on the car deal. If you inquire about one, some dealers will negotiate the amount with you. (Dealer holdback is NOT a discount or rebate, it is additional money many car dealers will negotiate.)
You should familiarize yourself with these added savings to guarantee you pay the lowest price. After researching any additional discounts available to you, read more about new car rebates and incentives.
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.
Take the guesswork out of trading your car.
One of the most elusive discounts is the factory to dealer incentive. These types of incentives can affect a dealer’s actual cost of a new car. 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 latest models.
Incentives may be different amounts for different individual makes, models, or even trim lines. The manufacturer will not pay out an incentive to the dealer until the dealership provides proof the vehicle has been sold.
These types of incentives are not normally advertised to the public. Most of the time even the car salesmen at the dealership don’t know which vehicles qualify for them. You must do your own research to 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. Each dealer is different, some may give up all, some, or none of the incentive. It really depends on how aggressive the dealer is at pricing the car.
Factory-to-dealer incentives is one of the most common discounts overlooked by car buyers. To look up this information, I recommend going to the manufacturer’s website of the vehicle you’re interested in. Or, to make it easier, use an online referral service such as Ryde Shopper and MotorTrend. When you request a quote from one of these services, any rebates or incentives (if available) will already be included within the quote.
RydeShopper has one of the largest new car dealership networks in the world. Select the make and model you’re interested in and they will instantly search clearance pricing within your local area. Don’t forget to select as many dealers as possible to increase your chances for the greatest discounts and savings.
Edmunds is one of the oldest and best new car research and review sites on the internet. Their huge dealer network allows you to shop, research and compare millions of new cars so you can find the exact vehicle you're looking for.
MotorTrend is one of the best kept secrets on the Internet. Best known for their automobile magazine, MotorTrend has a vast dealer network across the nation. Their referral service is 100% free and there’s no obligation to purchase. Just pick the vehicle you’re interested in, select local dealers, and receive discount pricing.
CarsDirect has been in online vehicle research business since 1998 and has all the right tools to help you find your next car, truck or SUV. They offer a no-hassle experience from configuring a car to making the final purchase. You’ll find your next car quickly and easily.
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Information needed to calculate a dealer’s true new car cost:
You can find the factory invoice price at Edmunds, pick out the car you want, and once you get the vehicle’s page. Scroll to the “Build and Price button.” Sometimes they put vehicles up before they receive the invoice price information and sometimes they will sell the button to an advertiser so you have to build the car on their page. Don’t fret, you may just have to come back at a later time. Here is a picture that shows how to locate the information.
Once you have the above information on the vehicle you want to buy. Figuring the true cost on any new car is a simple formula:
Invoice Price – Factory Holdback – Factory to Dealer Incentives = Dealers Net Cost
| Figure New Car Cost Example #1 | ||
|---|---|---|
| $24,839.00 | = | New car sticker price |
| $22,239.00 | = | Factory invoice price |
| $496.78 | - | Subtract dealer holdback (2% of MSRP *amount varies) |
| $1,000.00 | - | Subtract dealer incentive ($1,000 factory to dealer incentive) |
| $20,742.22 | = | Dealer's true net new car cost |
As you can see by the example above, the dealer’s true cost of the car is $20,742.22 and is a lot less than the factory invoice price of $22,239.00. It’s $1,496.78 lower than the dealer’s invoice price to be exact.
If you can buy the car for the dealer’s actual new car cost, you would save $4,096.78 off sticker. This translates to a savings of $113.80 a month on a 36-month car loan with no interest.
If you bought the vehicle in the above example at $300 over invoice, you would save $2,300 off the sticker price and be happy because you truly believe you received a good deal. The dealer will be happy also because they will still make $1,796.78 profit from that same deal.
To put the dealer’s profit into perspective, you would be adding $49.91 to your monthly payment on a 36-month loan at 0% interest. Is this considered excessive profit for a car dealer? That’s for you to decide.
When it comes to factory-to-dealer incentives, the dealer is entitled to the money. You may not be able to get the whole amount when it comes to these types of incentives, if any. Even if you only get half of it, you still save money. Each dealer is different, if the first one won’t negotiate it, try a different one.
