Dealer Invoice Prices - The Truth

Car dealers buy wholesale and sell retail, the way most retail businesses works. They buy cars from the car manufacturer (all car dealers are independent businesses, not owned by a manufacturer) for a specific price (invoice price) and mark up that price when selling to customers. It's the same way that JC Penney, Walmart, and Amazon.com work.

However, there seems to be a certain mystique about automobile invoice prices that isn't there when dealing with other kinds of businesses.

It stems from the fact that dealers often advertise "will sell at invoice" or "below invoice prices" and have brought the attention on themselves. Automotive customers are more aware of the fact that car dealers sell at different prices to different customers, and that it is actually possible to buy a car at or below wholesale price (because dealers say so). Customers want the best deal possible, and expect to get the same kind of deal that other customers are getting.

What is invoice price?

Invoice price is the price a car dealer pays to the manufacturer for each vehicle he buys. The price is the same for every dealer across the U.S.. There are other costs as well. Destination cost is also charged. This is a transportation and delivery fee that is also the same for every dealer, even if the dealer is next door to the manufacturing plant. Dealers simply pass this fee along to customers without markup.

There may also be advertising fees, although these may not come directly from the carmaker. Often, these charges come from a regional dealers' organization, and may be passed on to customers as a distinct line item in sales contracts.

Dealers borrow money, usually from the car company, to finance the cost of buying vehicles for their showrooms and new-car lots. There are costs (interest) on those loans. The longer a car sits on a dealer's lot, the greater the finance cost.

Built into dealer invoice prices are what are commonly called "holdback." This amounts to about 2%-3% of MSRP but can vary by carmaker. This fee can be returned to dealers after vehicles are sold, as compensation for "floor plan" costs (finance fees for loans that dealers use to buy vehicles from manufacturers). Automotive consumers sometimes think that this is simply added dealer profit than should be passed along to them.

How can a dealer sell at invoice price or below invoice price?

The answer: With a great deal of help from the car manufacturer. Dealers sometimes build up large inventories of unsold vehicles due to slow sales. Carmakers don't like this situation because dealers then do not order more cars from the factory. Therefore, the factory helps dealers sell cars by offering incentives to customers to buy more cars (0% loans, employee prices, rebates, special lease deals), and to dealers to sell more cars (factory-to-dealer rebates and sales bonuses). Dealers can pass along some of the factory-to-dealer incentives to customers to sweeten deals.

With the combination of customer incentives added to dealer incentives, dealers can easily sell vehicles at below-invoice prices. Both the dealer and the carmaker contribute to the deal, but usually lose much of their usual profit.

Car buying customers often expect dealers to sell at or below invoice prices even when incentives are not being offered. This is not reasonable. The only time a dealer can sell at or below invoice price is when he is getting help. The key to smart buying and leasing is to watch for manufacturer-incented deals. These are usually heavily advertised on TV and in newspapers and are usually genuine good deals.

Where do I find invoice car prices?

Easy. Go to Edmunds.com or any of a number of other car-related web sites. Invoice prices are commonly published. Just don't expect dealers to sell at invoice price if they aren't getting help from their car company.

You can get actual dealer price quotes from online sources such as InvoiceDealers and Edmunds). These are much more realistic selling prices. Most will include any incentives the dealer may be getting from the factory.

For more, see LeaseGuide.com