What Did the Dealer Pay for it?
How much should you offer to pay for a new car? You don’t want to be ripped off by paying too much and you also don’t want to be laughed out of the dealership by offering to pay too little. Learning how to calculate a fair profit new car offer will save you time, money and frustration from haggling with a car salesman.
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Offering to buy a new car at an unrealistic lowball price will immediately let a dealer know you’re not well prepared. This may lead him to believe he has a better chance of taking advantage of you during the car buying process.
Even though this formula is a great way to calculate a fair price to pay for a new car for both you and the dealer. Many car salesmen dislike this information because it decreases their chance of making a huge commission on the deal. After reading this section in its entirety. You’ll be able to figure a fair profit offer and present it to a dealer with confidence you’re not overpaying for a vehicle.
“Ask for all of it, the dealer will!”
When it’s time to present your “offer to buy,” you’ll want to add additional pressure on the dealer by putting him on the spot. Once the dealer investigates your figures are realistic, he’ll know that you’ve done your homework and are ready to buy a car right now.
I get emails asking me all the time, “how much should I pay for a car?” You should calculate your offer to be somewhere within this range:
3-5% Over a Dealer’s New Car Cost = Fair Profit New Car Offer
An offer of 3-5% over a dealer’s true new car cost is a very acceptable offer when purchasing a new car. Although it’s not a huge profit, a dealer will sell a new vehicle for a 3-5% margin any day of the week. They know you are an educated car buyer and they will have the opportunity to make up any lost profit on the next uneducated customer that walks through the door.
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There are several things you should take into consideration when calculating your offer. Missing one or more of these items can keep you from savings that may be available.
Additional Fees You Must Pay:
Some state, government or other fees are unavoidable and your responsibility to pay. These additional dealer fees should always be added after your calculated offer.
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Take the guesswork out of trading your car.
The steps for figuring a fair profit new car offer is relatively easy. Rebates, incentives, special programs, and dealer holdback vary by manufacturer, this can affect the outcome of your offer. I’ll show you how to figure this below.
Formula for finding a dealer’s true net new car cost:
Invoice Price – (Dealer Holdback + Factory to Dealer Incentive) = Dealer’s True New Car Cost
The first thing you want to do is find a vehicle. The fastest way to do this is by using free automotive websites such as Ryde Shopper and MotorTrend. These online automotive research companies provide you with a wealth of information to help you research, review, and compare vehicles you are interested in purchasing.
Once you find a car, request a few free quotes (I recommend at least seven quotes). This will give you a good idea of the current demand and market for the vehicle in your local area. The higher the demand, the harder it will be to negotiate the price.
Quotes also contain a lot of additional information that will help you calculate your offer. I’ve had many readers tell me they’ve received deeper discounts than what they actually calculated themselves.
Once you’ve landed on a new car, you’re ready to proceed to the next step by figuring the dealer’s new car cost.
Where are more tips for this topic?
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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Let’s say you’ve found a car you would like to buy. The sticker price of the car is $31,000 and factory invoice is $29,000 even. Dealer holdback on the vehicle is 3% of 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 the dealer’s true cost:
| 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.
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For this example you would like to buy a 2015 Ford Mustang coupe. Go to Edmunds, look up the car, select your options and find the MSRP. The MSRP is $22,145 before the destination fee and the invoice price is $21,093. You can get the dealer holdback amount here also, or you can find it on my dealer holdback chart. You find the holdback amount is 3% of the total MSRP or $664.35.
| No Rebate or Factory Incentive Available | ||
|---|---|---|
| $22,145.00 | = | Sticker price of new car. |
| $21,093.00 | = | Factory invoice price. (Including factory added options) |
| $664.35 | - | Subtract dealer holdback. (3% of MSRP *amount varies) |
| $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. |
If your offer comes in over the factory invoice. Start your offer at invoice and work up from there. The worst thing that happens is the dealer doesn’t accept your first offer.
