What Does a Dealer Pay for a New Car?

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There’s a reason that the manufacturer’s suggested retail price, or MSRP, on a new car serves as the starting point for negotiations rather than the final price. The MSRP often is thousands of dollars more than the dealer invoice, which is the purported price the car cost the dealership. While that number can be relatively easy to find, other factors make the final cost to the dealer harder to determine.

Dealer Invoice

  • The dealer invoice represents the official cost the dealership pays for the vehicle. Though it’s not as prominently displayed as the MSRP, many dealers will show you the invoice if you ask for it. Some dealers market their cars as being available for a certain dollar figure over invoice, in which case they’ll show it to you voluntarily. If not, you can find the dealer invoice for common models at several car information resources online, such as the Edmunds and Kelley Blue Book websites. However, one reason why dealers may show you the invoice is that it almost always overstates what the business actually paid. While a car buyer's goal generally is to get the vehicle for a few hundred dollars over invoice, you occasionally can get a car at or even below that number.

Dealer Incentives

  • When manufacturers want to move cars, they may offer incentives to encourage dealers to sell them. These vary regionally and can be based on sales targets, with the incentive not kicking in until a certain number of vehicles have been sold. They also can grow at various sales levels, so the incentive increases after the 50th vehicle of that model has been sold. Sometimes the incentive takes the form of a competition among area or regional dealerships, with those who sell the most reaping the greatest rewards. As a result, these incentives reduce the cost of the car for the dealership and provide additional motivation for the dealership to sell.

Holdback Amounts

  • Dealer costs are further reduced by the holdback. This refers to a percentage of the dealer invoice that manufacturers refund to the dealership when the car is sold. Generally, this amounts to 2 or 3 percent of the purchase price, though it’s difficult to determine the exact amount for a particular model. Negotiating based on the holdback price generally is a nonstarter -- in part because the payments don’t occur instantly. Manufacturers generally remit them on a periodic basis, such as quarterly. Holdbacks are difficult to use to lower your car price -- dealers see them as more of an entitlement than an incentive -- but they can be useful to know about if a salesman says she won’t make any money if the deal is too close to the invoice price.

Additional Dealer Costs

  • Not every dealer cost for a new car is reflected in the invoice. The destination charge to get the vehicle to the dealership usually is broken out separately, as are the tax, title, license and registration fees. These fees are rarely negotiable. While the dealer invoice generally includes a charge for the amount the manufacturer spends on advertising, dealers also may break out a separate advertising fee as a reflection of the cost they pay to market their wares locally. You may be able to negotiate that cost.

References

  • Photo Credit Carl Court/Getty Images News/Getty Images
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