I was car shopping today and the salesman began telling me how this particular model was just flying off of the lot. I thought that he was saying that so that he could try to drive a hard bargain, but in the end the manager comes out, shows me his invoice prices and says that I can have it for that.
I know that they aren’t selling the car for no profit. What is the deal here? Is he lying about his invoice price or receive a rebate somewhere else? It makes it hard to bargain from there as he says that I am getting it “at cost”. Is there a scam at work?
The dealer gets money from the manufacturer when they sell a car; it’s a few percent of the vehicle price. Called the “holdback” if I recall correctly.
So they can buy the car for $20k, sell it to you for $20k and still turn a profit.
Beware if: You have to finance it through their guys. The rates aren’t great. The car has dealer joke packages like soundproofing, paint protector, undercoating, and stuff you have to tack on above invoice. The paperwork and loan docs have all sorts of bank fees, credit report fees and document fees.
One can sell you a car for 1000 under invoice and clear 2500-5000 between fees, add-ons and finance charges throwbacks… and up to 20k if the dealer is actually the owner of the finance company.
The invoice price has nothing to do with the cost of the car to the dealer. You might try to get a better understanding of the market price of a car by looking it up on Edmunds.com.
It’s not perfect but it will give you a better understanding of where the dealer’s average sell price is.
Apart from what’s already been mentioned (the dealer has already received the car for less than the “invoice” price, and hopes to boost his profit later through useless add-ons - they’re hoping to make you feel guilty about trying to knock the price down any more, since you’d be forcing them to take the deal at a loss :rolleyes: and starve their families.
Most importantly, it’s probably a signal that they’re determined to shaft you on your trade-in. I’ve had this experience before buying a car. Settling on the new car price is fairly easy, then they make you a ridiculously low-ball offer on your trade.
There are several reasons for a dealer to sell a car below invoice. Not all have to do with making a profit.
[ol]
[li]Dealer Incentives: These are rebates that the manufacture gives the dealer, but not the customer. Sometimes these are well known. Other times, these are kept secret. I was looking at Toyotas when the dealer offered me $500 off of the list. I knew there was a $500 rebate, and yes that’s where the $500 off was coming from. I told the dealer that I knew Toyota had a $1,500 dealer incentive on this model. He shot back “That’s the Dealer’s incentive.” There was no way he was going to give me that money. No, I didn’t buy a Toyota.[/li][li]Holdback: Manufactures have something called a “holdback” that rebates the invoice price of a car when the car is sold. Dealers can use this to generate profit.[/li][li]Car wasn’t bought for Invoice Price: Dealers buy overstock from other dealers, and that particular car may have been from another dealer. Normally, dealers sell cars to other dealers to get rid of excess inventory, so they’ll sell these cars to the other dealer below invoice.[/li][li]Other Incentives: Sometimes there are other cash incentives that a dealer might use like a customer loyalty program. I bought a Dodge Minivan from one dealer who had offered me the car for $500 under invoice. While he was filling out the paper work, I realized he was selling the car as part of a customer loyalty incentive. “But, I hadn’t bought a Dodge before”, I protested. The dealer simply replied, “You let me worry about it.”[/li][li]Needs cash: If a dealer is low on cash, they may sell cars just to get cash. Selling a car below invoice might lose you money, but you’ll free up cash.[/li][li]Lose money on price, but make it back in other ways: The big one is the trade-in. You sell a car for $200 below invoice in a deal no one can beat, but when it comes to the trade-in, the dealer isn’t so generous. They’ll undervalue the trade-in to make up for the loss on the sale. You may suspect you can get more for your trade-in, but are you willing to walk away from that great deal you just got? Other things include dealer options that the dealer will attempt to pressure you to take, or awful financing terms if you come in without a good financing package.[/li][/ol]
Consumer Reports offers an excellent a new car buyer’s service that shows you the list price, the dealer’s invoice, and the probably actual cost for the car and each option. It also alerts you to dealer incentives and other cash programs. It is well worth the $21 or so which gives you the information on up to three cars.
I also recommend that you look at the Car Talk website and their recommendations on buying a new car: Car Info | Car Talk.
Car dealers also participate in advertising co-operatives with funds provided by the manufacturer. This allows them to put out a great deal of advertising at reduced or no cost to the dealer.
Agreed on the ridiculous add-ons, but will say that dealer financing is not always a rip-off. I got mine at 4-5 points below what I could find shopping for rates online and at brick-and-mortar banks. No extra fees. But, yeah, buyer beware.
These days with sales so low you should be able to get most any car below invoice. Every car that is made is sold to someone, none are thrown away. (the one exception is cars used for crash tests) In early 2006 I saw a new 2004 Volvo still sitting on a new car lot - you could get a great deal on that car at that point.
Depending on the dealer, the cars in inventory might be financed by a “flooring” company. These companies provide capital so the dealer can keep cars on the showroom “floor”. Every month or week that the car sits on the floor costs the dealer interest paid to the flooring company. In some cases the flooring is financed through the manufacturer, but they still charge the dealer. In some cases it is cheaper to sell the car now at a “loss” then to pay finance charges for a few months until they can sell it at a “profit”.
Also, about this time of year, dealers start to worry about being stuck with stale inventory. As soon as the 2010 models are available, the 2009 models won’t sell without a significant discount.
Umm, you might want to re-read what you wrote and consider revising it.
I can guarantee you that no car maker rebates the dealer invoice price of the car to the dealer. That would give the dealer a zero cost and the car maker a HUGE loss.
:smack:
Wow, I thought it was pretty well understood that the rebate was a portion or percentage of the invoice price but some people will do anything to be pedantic I guess.
-10 points from qazwart for not running his post past his legal dept first.
Even if you have the numbers and they are accurate doesn’t mean he has to sell you the car at a lower price.
Sure, they may be nice to negotiate with if he’s desperate to sell the car and you seem like the only buyer. But he’s just as likely to take a pass and find someone else who will pay him more.
Unless he can make more on the car by holding on to it and selling it to someone else. It’s good to go in prepared, but these guys do this for a living. They’ll never make a deal that they don’t want to make.
