If you have bought a vehicle in the past couple years and “haggled” to the point where the sales person stated that the dealership was
“selling the vehicle for invoice”, than this post is for you. Or, if you are, or will be in the market for a new car or truck then this post is for you as well.
What is the invoice price, REALLY? Is that REALLY what a dealer paid? Is that REALLY the bottom line? The answer may surprise you.
The following are factory invoices. The first invoice is from Ford, the second from Toyota and the third from GM. You will recognize some key things that are common among the OEM’s.
The two most important items to use in negotiating a car price are the invoice and the holdback. The invoice is the base price and the amount the dealer actually paid for the car which is calculated by taking the MSRP subtracting the destination and delivery, then multiplying by 3%. Again, the holdback gets credited to the dealer typically on a quarterly basis, so while it’s realized as profit it can hinder a dealership’s cash flow when giving it up. Many if not all dealers use “floor plans” which are essentially vehicle loans for the respective inventory. The invoice amount IS what needs to pay back to their lenders whether the are Ford Credit, GMAC, Toyota Financial, etc. Another important point is that if the desired vehicle was, or will be acquired via a dealer trade then chances are the dealer WILL NOT have received all of the holdback. So, the more specific you are with options and colors the less likely the car will be available at your local dealer AND the less likely the dealer will give you some of the holdback. It is common though dealers cringe when they have to give up the holdback. Remember, operating a dealership is expensive and now that there’s more transparency dealers aren’t making the gross profit they as compared to 20 years ago.
As you may notice, the layout is a bit different from the Ford invoice yet most of the same information is there. In fact, it’s pretty neat that up front they can tell you what your car will be worth in 24-60 months (just look at the residual value above). One minor note, Toyota breaks up the total holdback into two sections, one being the line- “holdback” and the other line is “wholesale finance reserve”. Essentially, both line items are calculated to equal 3% of the MSRP less D&D like Ford.
Explaining a GM Invoice
Again, this is very similar and so are the other OEM’s invoices. Look for the HB or Holdback and the invoice amount. Those two numbers are key when negotiating. MSRP is very arbitrary.
So what else does a dealer earn? Could this be it? Many times the answer is yes, but you have to read the next post to find out more.
January 5, 2011 by Jamie Rettig