When you go into a dealership, you want to know all of the pricing and costs of the car that you are looking into buying, as mentioned in my previous articles.
You should know the manufacturer’s cost and the dealer’s cost. You need to calculate the cost that the dealer paid for the car and then make a reasonable offer to him if you want to get somewhere. You should also know that the dealer’s price is not the invoice price from the factory. You should know that the dealer’s cost is much lower than the factory’s cost.
In order to make a fair offer to a dealership, you need to learn to read a factory’s invoice. Here is what you can expect to find on the factory invoice.
o Base model of the car on it
o All of the options packages
o Destination charge
o Holdback and dealer flooring help
Quick Tip: DO NOT confuse the invoice with the MRSP window sticker because they are not the same.
Contrary to popular belief, dealers don’t have to tell you the invoice on any car. This often gives the dealer leverage over you. They can offer you one dollar over the invoice. You should know that there are hidden factory incentives in the invoice price that lowers the cost of the car for the dealership. It’s no bargain for you.
If a dealership is very quick to show you the invoice, you should be aware that they are fully aware that they will be making money on that car off of you and they can settle at a lower price for the car.
Knowing this before you walk into a dealership can be your best negotiating strategy. See, they will tell you that you can afford to buy the car at MSRP hoping that you will not then wonder what the actual worth of that car is. Knowing this information can let you make them the same offer.
If you offer a few dollars over the factory invoice (which is the actual worth of the car) then you can open your bid and let them know how much profit they can make off of your offer. Check out these websites if you want to know the factory invoice of a car:
Dealers are always going to try and tell you that they paid less for the cars than they actually did so that they can make a higher profit off of the sale. Salesmen often try and make you feel guilty by telling you “I’m losing my shirt off of this deal”. In truth, you are the one that is losing your shirt off of the deal, so don’t buy into it.
To calculate what your offer should be to the dealership, you should get the factory invoice price (don’t forget to include the options in this price), and add 5% to that amount. That is how you should calculate your offer the dealership.
When I mention the options, I mean the ones that you can’t avoid. Some cars come equipped with a CD, sun roof etc. and these are fees that you can’t avoid paying so sure to account for these at the beginning. You should also be sure to account for any buyer rebates as well in calculating your offer. So in the end your offer should be calculated like this:
Calculating your offer to a dealership is as simple as that. When you are considering how much you can afford for a car, be sure that you don’t get sucked into paying more than that. If you are unwilling to pay more than your opening offer, let the salesman know that your offer stands firm and how they will profit from the offer. In the end you will get what you want on your own terms. To be certain that you get the drift I will set an example for you.
You are hoping to buy a Toyota Camry. You do your research at DealersInvoice.com, and find that the invoice price is $19,922; MSRP is $22,385. The dealer may offer you the car for $22,000, and shows you the invoice.
You learned by researching that there is a $500 factory to dealer incentive; and a $447 holdback on the MSRP (2%).
Based on the above calculations, the dealer’s real cost is $19,922 (invoice) – $500 (incentive) – $447 (holdback) = $18,957. This is far below the factory invoice number. Now, if you add the 5% for your offer to that price, which will up the car price to $20,379 due to the addition of $455 for the destination charge that is always present, you will see that based on the offer that the dealership offered, you just saved yourself $3410. This may seem complicated but if your use a pre-designed spreadsheet from CarsDirect.com or AutoUSA.com, the program does all the calculation for you.