Understanding Dealer Terms

Being educated about a dealer’s cost will give you an edge in negotiating a deal.

Dealer Terms. There are several terms you need to know when purchasing a vehicle.

Dealer Terms 
MSRPThe Manufacturer’s Suggested Retail Price (MSRP) is commonly called the sticker price. Few automotive models sell at MSRP.
Dealer InvoiceThe dealer invoice is available in magazines, books, and Internet sites. In the past, this was the price dealerships paid for a vehicle.
Factory HoldbacksAn average factory holdback is commonly 2-3% and can be estimated off the dealer invoice.
Factory to Dealer IncentivesDealers may receive an incentive, from a few hundred dollars to several thousand dollars, to sell end-of-year or slow moving models.
Dealer CostThis is the amount that the dealer will actually pay for the vehicle after holdbacks and incentives. If you can determine the actual dealer cost (Dealer Cost = Dealer Invoice – Factory Holdback – Factory Incentives) it is reasonable and fair to offer 4% more than dealer cost.

Making an Offer. Negotiate up from the dealer cost, not down from the MSRP. Don’t forget to include other costs when determining your out-the-door expense: sales tax, vehicle license, title, registration, dealer installed items, dealer documentation, prep fees, and extended warranty. If you are making a fair offer, a reasonable dealership will take it.