Explanation of a Dealer Invoice

A dealer invoice sounds like it should be straightforward, but it actually needs some explanation before you can truly understand what it means. At first glance, you might think it represents the actual cost to the deal for a particular vehicle. This is partially true, but there are other factors that affect the cost. A true explanation of a dealer invoice includes these factors so you can calculate a more accurate cost for the car.

Contents

A dealer invoice lists the cost of a particular new car. If the car has any options, the dealer invoice will itemize them and list their individual costs. These prices will be lower than the manufacturer's suggested retail price since they represent the cost to the dealer, not the car's selling price. The invoice also contains the destination charge, which is the cost of transporting the car from the manufacturer to the dealership.

Misconceptions

The most common misconception about a dealer invoice is that it actually represents the wholesale cost of a car. Many people think that the amount shown on a dealer invoice is the price paid by the dealer to the manufacturer. This is not the case, as there are other factors that typically reduce the cost. This means that if you get a deal on a new vehicle in which you pay the dealer invoice price, or even a lower amount, the dealer will most likely still be making some profit.

Considerations

Two things to consider about a dealer invoice are special incentives and the holdback amount. A manufacturer will often have special factory-to-dealer incentives. These are different than rebates because they are not advertised, and the money goes to the dealer, not the consumer. Some dealers might share part or all of it with a car buyer in order to make a sale, but they are not obligated to do so. These incentives bring the cost of the car to below the invoice amount. The holdback is a flat amount or a percentage of the invoice total. It varies among different manufacturers, but it is money that goes to the dealer and brings down the vehicle's cost.

Effects

When you understand a dealer invoice, it can have positive effects on your ability to negotiate a new car purchase. The dealer may try to convince you that paying a certain amount over the invoice price is a good deal, or he may offer a car at invoice price and claim that he is taking a loss. If you know about the holdback and any current incentives, you can counteract his claims with the facts. Incentive and holdback information can be found on car buying research sites like Edmunds.com.

Warnings

When you are well-informed about what a dealer invoice really means, a dealer who gives you a good price on a new car may attempt to pad her profits in other ways. One common trick is to load the car with extras such as window tint, fabric and paint protector, and rust guard. These have a high retail price but a minimal cost. She may discount the retail price to make you think you're getting a bargain, but in reality the profit margin is still very high. Another way dealers maximize their profits is through a documentation fee. This fee can run anywhere from $75 to close to $1,000, and it is pure profit. The dealer won't reveal it until you are signing the final paperwork, and it's usually pre-printed on the contract to make it look official.