Most car buyers want to leave the dealership convinced they got the best deal possible. Targeting the dealer invoice in negotiations is a common tactic, with the goal to get as close to it as possible. However, the invoice doesn't truly represent the cost of the vehicle for the dealer. In some cases, the dealer can still make money and you can pay less than the invoice price.
The Price Is Right
Invoice price refers to the price a dealer is expected to pay for the vehicle. It is not the same as the manufacturer's suggested retail price, or MSRP. Both prices are commonly available online and in pricing guides. Your dealer should provide you the invoice price if you ask, but you'll want to know that number well before you start negotiations in earnest. Typically, the price for a new vehicle is somewhere between the invoice price and MSRP. Salesmen use the invoice as a floor by saying that anything less than that means they won't make any money, but often that's not the case.
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Do your research before going to the dealership. You'll want to know not only the invoice price but anything that would drop the dealer cost below that figure. A dealer incentive provided by the manufacturer, for example, means the car costs the dealer less. So would a dealer rebate. Websites like Edmunds track such incentives by vehicle and location. The dealership also may be getting a holdback -- a percentage of the MSRP or invoice that the manufacturer repays the dealer once a vehicle sells. It's tough to tell the exact amount of a holdback, but knowing that it exists prepares you to negotiate with a salesman who claims a dealer won't make any money on a transaction. Don't hide your preparation; you want the dealer to know you're an informed customer who knows what she's talking about and has done her homework.
Like any other businessmen, dealers don't like to sell products at a loss. But also like other businessmen, they sometimes find themselves needing to move merchandise off the lot to make room for newer and more popular models. Car manufacturers sometimes make this easier with dealer incentives, or bonuses for selling specific vehicles that effectively lower costs. You may find dealers more willing to sell below invoice at the end of the model year, particularly if the model of car will debut a design change in the coming year.
To negotiate your best deal, be mentally prepared to walk away if you don't get the offer you want. Give the salesman a time frame -- for example, say you plan to buy a car within the next couple of weeks -- but don't arrive with a sense of urgency that a deal has to be completed that day. You'll have the invoice already if you've done your homework. If you have multiple dealerships in your area, get a price quote from each and get the dealers competing against each other. You can also go online to look up prices at dealerships that are farther away; even if you have no intention of driving 250 miles to save $250 on a car, the salesman doesn't know that.