Auto Pricing

Take particular note of the options that are standard on the models and which are part of which packages. Many times salesmen will try to "trick" you into thinking that you are getting something but the truth is that it is already standard for the model.

View the different models up close. A good strategy that I have heard of is viewing the cars after the dealership is closed either late at night or on Sunday morning. This allows you to review everything without a salesman trying to sell you. See how many of the models that you want are on the lot. The more cars of the make and model you want that are on the lot, the better your chances for negotiation.

Important: Car dealers get factory discounts from the "official" factory invoice price. In these situations, you can not pay attention to the Manufacturer's Suggested Retail Price (MSRP) because this figure is derived from the invoice price that was originally used. Remember, this is merely a guide even when there is no discount to the invoice price. Dealers are willing to bargain with you at the expense of their already high profit margin. In most cases, the profit margins for car dealership are between 10-20%.

You need to be able to distinguish between the terms that are listed on advertisements. Salesmen will often use these terms as well to confuse you. STUDY THEM CAREFULLY.

Base Price - The price of the car with no extras. This price is located on the MSRP sticker.

Dealer Holdback - This is the profit that the dealer may take. Works somewhat like a sales bonus for the dealer. NOT REFLECTED IN THE SALES PRICE. This is typically 2-3% of the MSRP.

Dealer Sticker Price - Equals the MSRP plus all of their markups. These markups include: additional dealer markup (ADM), additional dealer profit (ADP), dealer preparation cost, and undercoating.

Invoice Price - The manufacturer's price that the dealer has paid. Usually this price includes freight. Be sure that an additional freight charge is not added onto the final price.

Manufacturer-to-Buyer Rebate - The incentive that the carmaker offers to the consumer to purchase the car.

Manufacturer's Suggested Retail Price (MSRP) - Equals the base price plus the manufacturer's installed options. The price also includes the suggested retail markup for the dealer, a transportation charge, and the fuel economy that this model should get. This is located on the car window and MAY NOT BE REMOVED BY THE DEALER.

Note: If a manufacturer is offering you a rebate, you should think of this a deal between you and the manufacturer and irrelevant of the deal between you and the dealer. If, on the other hand, there is a dealer holdback, sometimes called a dealer rebate that you find out about; this should definitely be part of your negotiations with the dealer.

Example of Dealer Holdback (Auto Pricing):

Manufacturer's Suggested Retail Price $10,000

Dealer Invoice 8,000

Dealer Holdback (3% of MSRP) - 300

Dealer Net Cost $ 7,700

Most of the confusion concerning auto pricing comes about in the calculations. Do not let salesmen think that they are not making any profit. Even if you paid the dealer invoice price, the dealer still makes a 3% profit. All things considered, that amount of profit is still respectable, particularly if they are trying to sell cars quickly. This is opposed to the 23% profit that he would have earned if they had charged you the full MSRP price. This happens entirely too often to unsuspecting consumers.

The typical rule that most savvy car buyers use is to give the dealership between a 3% and 5% profit. If you are paying more than this amount, you are, in most cases, paying more than you should for the car. Remember that there are numerous car dealerships around. Another dealership will probably be more than happy to take your business if the dealer you are negotiating with will not.

Once you make this calculation, do not get bogged down by the incidental costs that the dealers will list on their retail prices. Never pay for services such as undercoating, rustproofing, pinstriping, and other such frivolous things. You must add the following items to "your" price estimation. These items, which are typically found on the official sticker, are destination charges and advertising fees. Do not forget to add state and local taxes as well.

Note: Typically, the best time of the year to buy a new car or truck is in the month of January. The reason for this is simple, historically this is the slowest month for auto dealerships and they will be more willing to negotiate with you on price. Also realize that certain types of vehicles will become more expensive different times of the year. For example, a convertible will cost more in late spring than it will in late summer. The same would also be true for buying a four wheel drive vehicle just before winter as opposed to late spring. The reasoning is simple, if the demand is greater for a particular model, the dealership will realize this and because of the larger amount of potential buyers, become less willing to negotiate on price.

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