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What is Dealer Cost?

by Autobytel Staff
May 20, 2011

Determining dealer cost on new cars is impossible, because dealer cost constantly fluctuates depending on rebates, incentives, financing rates, dealer holdback, bonus programs, and other variables. One thing you can be absolutely sure of is this: it is almost impossible to buy a car for less than car dealer cost. To estimate dealer cost on new cars, it is best to focus your research on those elements of auto dealer cost that are readily available or ascertainable.

If you are buying a car that is in low supply and high demand, stop reading this article. The new car dealer’s cost is irrelevant to you, and your time is better spent finding the lowest financing rate, or figuring out how to maximize the value of your trade-in. The reason car dealer cost doesn’t matter in this situation is that cars in high demand and short supply do not require discounts to sell. Someone will want the car badly enough to pay well over new car dealer cost for the vehicle. If the law of supply and demand does not apply to your situation, please continue to learn more about establishing dealer cost on new cars.

The baseline for determining the dealer cost, invoice price is easy to research and find. However, it is not the only element used to determine dealer cost on new cars. Invoice price is supposed to reflect what the dealer paid for the car, but calculating car dealer cost is more involved than that. 

Rebates are cash paid to the car buyer, while incentives are cash paid to the dealer. An incentive effectively lowers the dealer cost on new cars by reducing the invoice price. If the car you want to buy has an incentive program associated with it, be sure to reduce invoice price by the amount of the incentive to determine dealer cost.

A rebate is paid to the car buyer, but these are often rolled into the deal as a way to lower the price of the car. The buyer signs a document allowing the car manufacturer to pay the dealer instead of you. Don’t let rebates “disappear.” Apply the value of the rebate to the invoice price as a way of further establishing new car dealer cost.

Sometimes, car buyers are offered low-rate financing as an alternative to a rebate. In these cases, you must assess whether savings will be greater by accepting the rebate to reduce the dealer cost and financing the car at a standard rate or if you’ll save more by accepting the low interest rate financing and foregoing the rebate, thereby raising the dealer cost. This is one reason why it is always best to have your financing arranged in advance of visiting the dealership.

Dealer holdback is an amount that most auto manufacturers set aside to help offset the costs that a dealer will incur to stock the lot with new cars, advertise the new cars, and otherwise operate a new car sales department. The amount is typically two to three percent of the sticker price, or $600 to $900 on a $30,000 car. The sooner a car sells after arriving on the dealer’s lot, the more of that dealer holdback money ends up in the dealer’s pocket as profit.

When determining dealer cost on new cars, you can research dealer holdback and, based on the amount of time the car has been sitting in dealer inventory, use this information to better pinpoint auto dealer cost.

You may have heard that the best time to buy a new car is at the end of the month. This is because dealership employees are eager to sell as many cars in a month as possible to maximize their earning potential through frequently available bonus programs. These bonus programs are typically cumulative with stair-step sales goals that produce greater rewards for each level attained, or these are temporary spot bonus programs that pay a set amount for each car sold within a given time period. Bonus programs effectively lower the dealer cost on new cars, but it is not realistic to expect that you will know exactly how much the bonus on your sale might be.

Print might actually still be useful for something. On weekends, city newspapers typically run advertisements for dealers in which they tout current sales, and the details of those sale prices. If you live in a large enough area served by multiple dealers selling the brand of car you want to buy, you can scour these ads for details about rebates, incentives, financing rates, and other discounts that reduce new car dealer cost.

One thing people forget when they are researching dealer cost on new cars or negotiating a deal as close to car dealer cost as possible is that their time has value, and the more time they spend trying to determine exact dealer cost for a new car, the more that time spent learning new car dealer cost is restricting them from enjoying more pleasurable pursuits. We’re not saying you shouldn’t do your best to ascertain auto dealer cost when buying a new car, but if you’ve spent six hours at the dealership haggling over a couple hundred dollars and the deal still isn’t signed, perhaps it is time to revise strategy.


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