Taking the mystery out of new car prices

Confidential New Car Pricing Information

Warning! . . . Do not buy a new vehicle without taking 5 minutes to read this report!

Buying a new car is a big decision, but it doesn’t have to be a difficult one. The average person will buy 10-12 cars in their lifetime. Preparing yourself and doing your homework is the key to being able to make the important decisions with total confidence.

Once you’ve decided on the car you will buy or lease, you will need to be able to determine what is a good price. This is where it can get very tricky. Before you sign on the bottom line you need to know how to recognize a good deal when you see one.

Anatomy of a new car price:

M.S.R.P. – The Manufacturer’s suggested retail price, commonly known as the List price or window sticker is the retail price set by the manufacturer. This is typically the price that the new car dealer would like you to pay. Although the overwhelming majority of new cars are sold at less than the M.S.R.P., some dealers will hold out for this price on a very hot-selling vehicle that is high in demand and limited in supply.

Dealer invoice price – Every manufacturer sends an invoice to the dealer for their vehicles as soon as they are delivered to the dealer. The dealer will typically pay for the vehicle via a prearranged line of credit. Commonly, the dealer will start paying interest charges from the first day onwards.

Holdback – Most manufacturers help subsidize the interest charges and marketing/advertising that a dealer incurs by paying the dealer a holdback amount, after the vehicle has been sold. This amount typically ranges from 2.0% to 2.5% of the invoice amount. Dealers will rarely consider this when negotiating a new car deal

Maximum dealer margin/profit – The difference between the M.S.R.P. and the dealer invoice price is the maximum dealer margin/profit that the dealer has to work with when negotiating a deal.

Dealer and buyer goals - The dealer’s goal is to negotiate a deal as close to M.S.R.P. as possible and the buyer’s (your) goal is to negotiate a deal as close as possible to the dealer invoice price.

Actual dealer margin/profit – The amount over the dealer invoice price that is finally negotiated between the dealer and the buyer (you), is the dealer’s actual dealer profit/margin, before sales and overhead expenses.

Dealer overhead and bottom line profit - From the actual dealer profit/margin amount the dealer has to cover the sales rep and sales manager’s salaries, commissions and bonuses. The remainder goes to the dealership to cover all other expenses, with the final balance representing the actual net profit to the dealership.

Factory-to-consumer incentives – In an effort to stimulate sales, many manufacturers will offer incentives to the consumer (you). These incentives are commonly advertised in the media and can consist of low rate financing/leasing rates, such as 0%, cash rebates, such as $2,000, or a combination of both. If a manufacturer is offering you 0% or $2,000 cash, the emphasis is on OR; which means that you cannot get 0% financing and $2,000. You have to decide between the two. In some cases, you can combine the 0% and $2,000, but not very often.

Factory-to-dealer incentives – Commonly referred to as hidden or secret rebates. Internally these non-advertised dealer incentives can be known as marketing credits, trading dollars, factory cash, dealer cash, dealer bonuses, invoice credits, etc. Many manufacturers will use them as additional stimulus for the dealer to sell more vehicles. In some cases, the manufacturer may not want to advertise that they are offering incentives to avoid tarnishing their image, where others will use these incentives to encourage dealers to carry more inventory and thus potentially sell more vehicles. Most dealers will factor in these factory-to-dealer incentives when negotiating a deal. Effectively this may allow the buyer (you) to buy/lease a new vehicle for less than the dealer invoice price.

As you can see, new car pricing can be very complex. Knowing what you now know, would you ever simply walk into a dealership and negotiate a deal on your own, without having all the information above? I would bet that your answer would be a resounding NO!

After searching the web, I discovered a number of sites that promised to offer this information, but after digging, I would suggest that only one is credible enough for me.

Your best choice would be CarCostCanada at www.CarCostCanada.com. According to their website, they also supply this information to insurance companies which are notorious for being very particular about their service suppliers. CarCost has also been around since 1999 and judging by their feedback page, appear to have a very strong following. When you consider the size of your investment in a new car, to spend less than $40, to ensure that you get the best deal, is a small price to pay.

Jeremy Andrew

TheCarMagazine.com