Imagine this scenario. You sit down at your favorite bistro for a nice meal, and the filet mignon on the menu catches your eye. But there’s something weird next to the $35 price for the steak: an invoice price of $12 showing what the restaurant paid for le bœuf. Knowing that price will, of course, not enable you to negotiate with your waiter for a better deal—and obviously doesn’t reflect how much money the establishment is actually making on your meal.
The same holds true regarding invoice pricing for cars, as well as factors like dealer holdbacks and bonuses. Here’s the real deal in five easy pieces.
- Invoice is not the real cost of the car.
Yes, the dealer’s business depends on maximizing its profit when it comes to selling your dream ride to you. But it’s not strictly a matter of greed. The reality is that a car dealership is running an operation with a big staff, lots of fixed costs and plenty of overhead. If you and everybody bought every car and service at the unit cost, the dealership could not sustain its business. Nobody is privy to all the dealership’s costs and expenses except the general manager and owner. But it’s clear that the published invoice price does not reflect what it costs to put the keys in your hand, so don’t set an unrealistic target for your deal.
- Profit has nothing to do with what’s on the invoice.
If you think that paying $50 over invoice automatically means you’re getting a great deal, think again. At Roadster, we do deals everyday, and in many cases, we get cars at a price below invoice for our clients. How can that be—if selling below invoice the dealer loses money? The answer: the dealers still make money. At the end of the month, dealerships commonly get an additional check from the manufacturer based on your purchase, a profit that is hidden and “held back.” Substantial monthly and quarterly bonuses paid to dealerships when a dealer meets sales goals work in a similar way. Many dealers, in fact, are prepared to share some of this additional profit with you to win your business.
- Dealerships will find other ways to make a profit.
Much like the guy who knows the price of the filet mignon at a restaurant, knowledge of holdbacks won’t get you very far. Even if you laser focus on the invoice price, and hold your ground in a knock-down bargaining session to a few hundred dollars over or under invoice—most buyers will end up paying it right back in the finance office. That’s when the dealership will apply a dozen or so other levers to extract a few more dollars. Lease deals can take on higher money rates. (See our article on lease deals). And if you buy any one of a long list of aftermarket products—like paint protection and an extended warranty—you’ll likely be giving back every dollar you earned in a tough negotiation based on some notion of invoice or profit.
- It’s all about availability of your specific desired model.
The willingness of the dealer to make you a great deal, or not, has very little to do with your limited knowledge about its profits. On the other hand, it has absolutely everything to do with the available inventory of your desired model. Here are the basic economics:
- If there’s only one or two of that desired model (and trim) in your regional market, expect to pay more.
- If there are dozens or more of your desired car, expect the dealer to be very friendly, and entice you with a great price.
- The real answer is get total insight into all the deal’s dimensions.
Here’s the good news: Your Roadster Concierge has a crystal clear picture of how many units exist of your desired car and its style, and will give you an honest assessment when you are seeking a vehicle that is in high demand—for example, a new highly advertised model just coming to market. If that’s the car you really want, Roadster will make sure you get the best deal on it, or they will guide you to a different one where inventory is plentiful so the dealer is willing to make a little less. And they’ll make sure the deal sheet spells out all the costs, so no unnecessary extra features or mark-up fees get tacked on.
A professional car buyer, like the concierge reps at Roadster, know what matters, and what doesn’t, in terms of one critical outcome: a great deal for you.
“Getting too focused on how much the dealer is making is not going to help you negotiate a better deal,” said Chris Gross, executive vice-president of Concierge Services at Roadster.com. “It’s supply and demand of the car that’s going to determine how the pricing plays out.”
