Is Invoice Price Really What the Dealer Pays?
It is nearly impossible to go car shopping without hearing about invoice price. Dealerships even advertise that they are selling their cars at, below, or slightly above invoice price. Invoice price is often thought of as the price that dealers pay to the manufacturer for the automobile. Dealerships who advertise invoice price are even eager to show you the printed invoice. The reality of invoice price is that the price printed on those invoices is not necessarily anywhere near what the dealer actually paid for the vehicle.
- One of the “secrets” behind the invoice price is called “holdback.” Holdback is money that the dealer receives from the manufacturer once the vehicle has been sold. Dealer holdback is a percentage of either the MSRP or the invoice price and is designed to assist dealer’s cash flow and reduce expenses. While holdback percentages are published in a variety of places, it can be difficult to discover exactly how much holdback there is, but a safe estimate is usually in the range of 2% to 3% of MSRP. A few manufacturers, such as Land Rover and Porsche do not use holdback schemes. Holdback is generally considered “untouchable” money and is usually never put on the table as a negotiation item.
- Rebates are not just for the consumer. Dealerships get rebates, too, in the form of manufacturer incentives that vary by vehicle and location. These manufacturer incentives are designed to get dealers to sell particular models, and it is up to the dealer as to how much, if any, of this money they want to share with the consumer. Popular models that are selling quickly will generally have little or no rebate. Slower selling models may have a large rebate or incentive behind them.
- We’ve all heard the advertising that states such-and-such dealer is the highest volume dealer in the area. This claim to fame isn’t just for bragging rights. There is money involved with being a high volume seller. The more cars you are selling, the more you are worth to the manufacturer. The more your dealership is worth to the manufacturer, the more incentive the automaker can provide to continue selling cars. Volume incentives come into play when a dealer sells a certain number of cars in a pre-determined time. This incentive can vary between dealerships and by location.
On top of all of this there may be flooring assistance, advertising credit, and other credits you will likely not hear about. Nor will you ever have the opportunity to discover exactly the amount these additional dollars add to the dealers’ bottom line. So, the moral of the story is to be aware that invoice price may not be what the dealership paid for the vehicle and any dealer advertising invoice price as the purchase price may still have negotiation room. Of course, the dealer is under no obligation to reveal the details of their holdback and various incentives, but knowing that these dollars exist and that these dollars can amount to a fair bit of cash can aid you the next time you shop for a new vehicle.