Let’s say you’ve found a car you would like to buy. The sticker price of the car is $31,000 and the factory invoice is $29,000 even. Dealer holdback on the vehicle is 3% of the invoice, which is $870.
You also find there’s a $2,500 secret factory-to-dealer incentive available. This incentive is available from the manufacturer to the dealer to help move the car off the lot to make room for the newer models. The dealer will not normally bring up these types of incentives unless you mention them first.
First, let’s figure what the dealer’s true cost is:
How to Calculate Dealer Cost |
$31,000.00 | = | Sticker price of new car. |
$29,000.00 | = | Factory invoice price. (Including factory added options) |
$870.00 | - | Subtract dealer holdback. (3% of MSRP *amount varies) |
$2,500.00 | - | Subtract factory to dealer incentive |
$25,630.00 | = | True dealer's net cost |
The goal is to not pay more than 5% profit for your new car. Using 3% first will give you a little “wiggle room” to negotiate with the dealer. If you decide to use 3%, calculate the 5% profit margin also, so you can stay within your goal.
Now let’s add the 3-5% fair profit amount to the dealer’s true cost. I’m using 4% for my examples.
How to Figure a New Car Offer |
$25,630.00 | = | Dealer's true net new car cost |
$1,025.20 | + | 4% fair profit offer(Dealer's cost x 4%) |
$26,655.20 | = | Your total fair profit new car offer |
If you were to offer the dealer $100 over invoice on the above car, you would save $1,900. If you buy the car at your fair profit offer of $26,655.20 you will save $4,344.80 off the sticker price. That’s a difference of $2,444.80 between you reading this website or just shooting from the hip stating, “I’ll pay $100 over invoice.” Even if you fall somewhere between the above two numbers, you’ll save more than paying $100 over invoice.
Your offer is well below what an uneducated 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.