Advertisement
Buying & Leasing a Car

In Search of the Real Dealer Cost

Knowledge will give you the power to drive a good deal.

Most new-car shoppers know that invoice price is a bargain. But does that mean the dealer makes no money? And how can dealers sell cars below invoice?

The true dealer cost is decidedly less than the invoice price, although exactly how much a dealer pays a carmaker for a vehicle is an elusive figure. We set out to determine the true dealer cost.

Advertisement - Article continues below

Elusive numbers. "The auto industry is the only business in which the term invoice doesn't actually define cost," says Jesse Toprak, of TrueCar.com, an automotive-data company. For example, the invoice price does not reflect the holdback, a discount the dealer gets from the manufacturer that the dealer uses to help pay the cost of financing its cars. Dealers may also get cash from the manufacturer to move certain models. The thinking is that dealers know the best way to close a sale, and they can use any or all of the cash to help get the deal done. But, says Toprak, "if you know the incentive exists, you'll likely get 100% of it."

TrueCar.com lists the holdback and dealer incentives in its price report for each vehicle. The report, which is free, also shows the site's best estimate of the actual dealer cost, the higher, factory-invoice price and the average price that buyers are paying. Say you're shopping for a 2010 Volvo V70 wagon. The sticker price is $34,400 and the invoice price is $32,887. But the site's TrueCost is $4,000 below invoice, after subtracting $1,000 for the holdback and $3,000 for dealer incentives.

Advertisement
Advertisement - Article continues below
Advertisement - Article continues below

Dealers may also benefit from other carmaker-to-dealer kickbacks, such as carryover (for selling last year's models to make room for new inventory), volume bonuses (for moving a lot of cars) and customer-satisfaction bonuses (for high scores on customer surveys).

Knowing the dealer's actual cost and potential profit can help you drive home a bargain. But to get the best deal, make dealers compete for your business. "You don't need to be an expert," says Robert Ellis, of CarBargains, the car-buying service of the nonprofit Consumers' Checkbook organization. Pit dealers against each other -- all the dealers in your area will be working with the same holdback and dealer cash incentives.

You can follow Car-Bargains' strategy yourself: Approach several dealers, but ask to speak with one of the managers -- they know the bottom line better than the salespeople and care more about volume than commission. Solicit bids from them over the phone or via e-mail. Use the invoice price of both the vehicle and options to compare deals. Or for $200, CarBargains (www.carbargains.com) will get bids from five dealers in your area on the car you specify.

Advertisement - Article continues below

Good fees, bad fees. Legitimate fees are listed on the factory invoice, which the dealer should share with you. These are fees that the dealer has to pay to the manufacturer and is passing along to you, including the destination fee (the cost to transport the vehicle to the dealer) and the carmaker's regional advertising fee. TrueCar.com includes this in its invoice and TrueCost figures. You may also be stuck with administrative fees and fuel charges if they're listed.

A few fees inhabit a gray area -- you'll likely have to pay them, but you might be able to negotiate. The document fee is one example. Some states regulate it; others don't. California does and sets the fee at $55. But dealers in Florida may charge several hundred dollars. Find out what other dealers charge -- the dealer may reduce its fee to match the local competition.

Some fees you should never pay because they are part of the cost of doing business. They include floor-plan fees (the cost to hold inventory at the dealership) and vehicle-preparation fees (for cleaning, removing plastic and checking fluids). Any fee listed only as an acronym should raise a red flag. If it doesn't show up on the factory invoice, don't pay it.

Advertisement

Most Popular

What Are the Income Tax Brackets for 2020 vs. 2019?
tax brackets

What Are the Income Tax Brackets for 2020 vs. 2019?

The IRS unveiled the 2020 tax brackets, and it's never too early to start planning to minimize your future tax bill.
June 20, 2020
Tax Changes and Key Amounts for the 2020 Tax Year
tax law

Tax Changes and Key Amounts for the 2020 Tax Year

Americans are facing a long list of tax changes for the 2020 tax year...and it's never too early to start thinking about next year's return.
June 22, 2020
10 Tax Breaks for the Middle Class
tax deductions

10 Tax Breaks for the Middle Class

Tax breaks aren't just for the rich. There are plenty of them that are only available to middle- and low-income Americans.
June 30, 2020

Recommended

Protecting Your Car During COVID-19
cars

Protecting Your Car During COVID-19

Lack of exercise won’t make your car flabby, but problems with the battery, the fuel and even malevolent wildlife are a real possibility.
June 12, 2020
9 Reasons to Retire in an RV
retirement

9 Reasons to Retire in an RV

RV-loving retirees talk about the upsides of spending retirement in a motorhome, travel trailer, fifth wheel or other recreational vehicle. Even Presi…
June 8, 2020
52 Super Deals and Discounts for 2020
spending

52 Super Deals and Discounts for 2020

With a special nod to those of you spending more time at home, we found dozens of deals and discounts, plus ways to save (or make) money.
June 6, 2020
When Is Amazon Prime Day 2020?
spending

When Is Amazon Prime Day 2020?

Circumstances beyond its control have forced Amazon to move its annual Christmas-in-July Amazon Prime Day blowout sale in 2020 to ... not July.
May 29, 2020