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.
|MSRP||The Manufacturer’s Suggested Retail Price (MSRP) is commonly called the sticker price. Few automotive models sell at MSRP.|
|Dealer Invoice||The dealer invoice is available in magazines, books, and Internet sites. In the past, this was the price dealerships paid for a vehicle.|
|Factory Holdbacks||An average factory holdback is commonly 2-3% and can be estimated off the dealer invoice.|
|Factory to Dealer Incentives||Dealers may receive an incentive, from a few hundred dollars to several thousand dollars, to sell end-of-year or slow moving models.|
|Dealer Cost||This 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.