What Is Dealer Invoice Cost?

Many new car dealers offer special sales like "Buy a car at the invoice price" or "Pay just one dollar over invoice." You might assume that the price on the dealer's invoice paperwork represents the actual cost of the vehicle, but that is not necessarily the case. There are many factors, such as holdbacks and special incentives, that can reduce the invoice cost to well below the numbers on the factory invoice paperwork. If you know how to determine the actual invoice cost, you may be able to negotiate a better deal.

Invoice

A dealer invoice is a document that shows the actual cost of a new car and its various options. This cost is often much lower than the manufacturer's suggested retail price (MSRP). Technically, the invoice is supposed to reflect how much the dealer pays to the manufacturer for the car. However, other factors play into determining the actual dealer cost, and it's often lower than the number shown on the invoice itself.

Holdback

The holdback is an amount that is deducted from a car's invoice price by the manufacturer, reducing the actual invoice cost. This number will not be shown on the invoice paperwork. It varies depending on the car's manufacturer, but it's usually either a percentage of the invoice total or a flat amount. Many new car dealers will not negotiate with customers on the holdback amount, but you should be aware of it because it reduces the true invoice cost.

Incentives

Often a car manufacturer will offer special factory-to-dealer incentives on certain new car makes and models. These bonuses are different than a rebate because they are given directly to the dealer rather than to the customer. Incentives reduce a car's invoice cost to the dealer, who can then choose to keep the money as additional profit or give a discount to buyers.

Additional Markup

Many car dealers add additional markups onto each new car sale. Even if they are selling you a new car for the price marked on the invoice, they may require you to pay a "documentation fee" that can run several hundred dollars. There are other names for this type of fee, but no matter what it's called, it is profit to the dealer over and above the invoice cost.

Research

You can determine the true invoice cost of a new car by doing some research before you visit the dealership. There are many websites, such as Kelley Blue Book and Edmunds, that will give you the invoice price for vehicles and options. If you dig a little deeper, you will find that many of these sites also list holdback amounts and provide information on current factory-to-dealer incentives. You can subtract these amounts from the invoice price to determine the real invoice cost.