Buying a new car can be a confusing and frustrating process, but having accurate information on the dealer cost helps you come up with a strategy to pay as little as possible. The salesman will point you to the price tag on the car, which represents what the dealership wants you to pay. However, looking at the dealer's invoice gives you a more appropriate starting point to begin your negotiations.
The MSRP is the manufacturer's suggested retail price. It's the number you'll see on the window stickers on the dealership, and is usually where the salesman starts negotiations. This represents a markup from what the dealer paid, which differs depending on the make and model of the car. A smaller, economy car may have a 5 percent profit margin built in, for example, while a luxury vehicle's MSRP may be 10 percent or more above the invoice.
When buying a car, you'll likely want to start negotiations with the invoice price rather than the MSRP. This represents the official amount the dealer paid the manufacturer to acquire the vehicle. This doesn't necessarily represent the dealer cost, however, as dealer incentives and holdbacks can reduce that amount. Incentives offer cash back to the dealer for specific models, while the holdback represents the amount of the invoice price that the manufacturer refunds the dealer once the car is sold. While holdbacks in particular can be tough to determine, you can find invoice prices online at sites such as CARandDRIVER.com's Buyer's Guide. Many dealers will provide an invoice if you ask, but getting it before you arrive makes it easier to prepare.
Supply and Demand
Occasionally, the MSRP represents what you'll have to pay. If the vehicle is particularly popular or hard to find, your room to negotiate a better deal may be limited, and in rare cases you may have to even go above sticker price to secure a coveted car. For the most part, however, your goal should be to negotiate a final price that's close to the invoice price. During periods of slow sales, or at the end of the model year, you might even be able to get the car below the invoice price if the dealer incentives and holdback are high enough.
Plenty of free resources, including the Kelley Blue Book and Edmunds websites, can assist you in determining what others are paying for your desired vehicle where you live. Input the details of the vehicle, including what options you're looking for, and you'll get an estimation of what others are paying. While there's no guarantee your experience will be the same as those buyers, it's a good baseline for how far below the MSRP you'll be able to go and still walk away with the car.
- Edmunds.com: Pricing Basics for New-Car Buying
- Kelley Blue Book: Fair Purchase Price -- What You Should Pay for a New Car
- Cars Direct: How Much Over a New Car's Invoice Price Should I Expect to Pay
- Cars.com: Buying A New Car From a Dealer
- Car and Driver: Car-Buying Negotiation Guide
- Kelley Blue Book: 10 Steps to Buying a New Car -- Step 5 -- Know When the Price is Right
- AutoTrader.com: Buying a Car -- How Much Do Dealers Mark Up a Car Over the Invoice Price?
- Kelley Blue Book