The world of car buying is fueled by mystery. Dealer participation bonuses, holdback and incentives can disguise the price a dealer paid for a new car. To determine what dealer cost is one must learn the many variables associated with new car pricing and profit.
The Invoice
A vehicle's invoice includes basic vehicle information and pricing. The invoice breaks down the base cost of a vehicle and its factory installed options or accessories. Invoices also include the total manufacturer's suggested retail price, or MSRP.
A dealer is charged the invoice price directly from the manufacturer, through their financing floor plan, when the car enters their inventory.
Holdback
Factory holdback is credited back to the dealer once a vehicle is sold. Holdback is not included in the vehicle invoice, and varies between manufacturers. The average holdback is around 3 percent, depending on the price of the vehicle. Manufacturers offer holdbacks to assist dealers with overhead costs, including sales commissions.
Dealer Cash
Dealer cash is a bonus payment issued to a dealer on particular vehicles. Not all vehicles have dealer cash incentives, and the size can range from $500 all the way up to $5,000. The amount of the dealer cash depends on the current inventory supply of the product.
Dealer cash is similar to customer cash, also known as a rebate. The difference is that manufacturers don't publicly post dealer incentives or require that the dealer give any of it to the customer. Its primary function is to assist the dealer in selling a particular model of vehicle, allowing dealers to increase profit or discount the vehicle more to sell it quickly.
Factoring in any additional dealer cash effectively lowers the true invoice price for the dealer.
Markup
Dealer markup is usually very low on new cars compared to other products; an average markup of less than 10 percent between invoice and MSRP is common. New vehicle mark-up has reduced in recent years primarily because of the amount information available on the Internet for consumers. The reduced markup on new cars has pushed manufacturers to increase dealer cash and other incentives, to help dealers remain profitable.
It is common for a dealer to sell a vehicle with little or no profit. Most dealers make a majority of their income from their finance and service departments. Dealers offering financing may mark up the interest rate or receive a commission on the financing of a new car, making up for the small profit made on the sale price. When a new car owner brings their vehicle in for warranty work, the manufacturer pays the dealer to fix it.
Expert Insight
Finding out the true invoice price for a vehicle can be difficult, but is feasible. To fget to the real bottom line, one needs to determine the actual invoice price, holdback and dealer incentive. Many on-line resources can offer assistance. While the actual prices given will never be 100-percent accurate, they can give you a close estimate.
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