How to Calculate the True Dealer Cost of a New Car

new car buyingThe Invoice Price Secrets that Dealerships Don’t Want You to Know

You’re at a new car dealership, and the sales person has offered to sell you a car at the invoice price. He moans that you’re taking food out of his kids’ mouths and that he isn’t making a penny on the deal. More likely, he and the dealer are making a hefty profit because of two things: the holdback and hidden factory to dealer incentives. The invoice price of a car doesn’t reflect either of those things, so the dealer’s cost is actually less.

You’re in a better bargaining position if you know about holdbacks and special incentives. Here’s what they are and where to find them:

Holdbacks: The holdback is a percentage of a new car’s MSRP or invoice price that is given to the dealer by the manufacturer. The true cost of a new car is the invoice price minus the amount of the holdback.

Typical holdbacks run from one to three percent of a car’s MSRP, although a few manufacturers use the invoice price to calculate the amount. A handful of car companies, like Audi, BMW, Jaguar, Land Rover, Mini, Lincoln, Porsche, and Scion, don’t have holdbacks at all. You’ll find current holdbacks at big automotive websites like Edmunds.

Factory to Dealer Incentives:
Most consumers are familiar with rebates. New car manufacturers sometimes offer cash back for the purchase of particular models. This happens most commonly with slow-moving models or at times of the year when sales are normally down, like the Christmas season.

Factory to dealer incentives are pretty much like rebates for car dealers. Instead of giving the money to consumers, the car companies give it directly to their dealerships. The dealers can keep it as additional profit or use some of all of it to entice customers with lower prices. Incentives change frequently, and are often regional rather than national, but sites like Cars.com offer up-to-date lists.

Dealerships and new car sales people are under no obligation to share any holdback or dealer incentive money with you. However, if you know about this money, you won’t be suckered in by a hard-luck story that the dealer is losing money on an invoice price sale if you know about the holdback or the $500 incentive on that model. If the sales person is hungry enough for a sale, you might be able to use this information to negotiate a sweet below-invoice deal. Shop for your car at the end of the month, or better yet, at year end to increase this possibility and get yourself the best possible bargain.