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New Car Dealer Invoice - How to Buy Below the New Car Dealer Invoice

rebates offer dealership actual

A truth in the modern car market is that buying used is more cost-effective than buying new. Most cars provide their owners with the same value in years 4-6 as they did in years 1-3. The difference is the new car premium, which is gone by year three, and thus avoided by the used car buyer. The perceptive car buyer must recognize that premium for what it is, the price of luxury.

Nevertheless, this isn’t an attempt to talk you out of buying a new car. For those who can afford it, there’s nothing wrong with a little luxury in our lives. The problem lies in how much we pay for it. The majority of new car buyers pay far more than they have to, and this is evident in the average paid numbers that the various consumer research agencies compile at the end of each year.

Why do so many overpay? The simple answer is convenience. The average consumer wants it, and the car industry leverages that with no-haggle/no-hassle prices and new car invoice sales. The purchase is convenient, and the consumer at least gets to feel as if they got a good deal. However, chances are that if you purchase a car without negotiating, or at or near new car dealer invoice, you paid too much.

Here’s why: At minimum, a new car dealer invoice includes 2-3% that the manufacturer reserves for Fleet customers. They call it a holdback, and actually list it on the invoice as such. This is a discount that the dealer must pass onto the Fleet customer, but can otherwise do with as they please. Even though they don’t publicize it, the average customer can take advantage of it. That’s because the dealer can lose that 2-3% and still turn a healthy profit.

In addition to the holdback, there are delivery allowances and rebates given to the dealer by the manufacturer on each car purchase. This is potential savings for the buyer that ranges from several hundred to several thousand depending on the overall price of the car. In many cases, the dealer passes all rebates onto the customer, such as what is happening when you see a new car ‘at invoice’. However, be aware of active manufacturer rebates so that you know when the dealer is holding out on you.

The purpose of accurately estimating what the dealership paid is that we can now use that number rather than the new car dealer invoice to offer the dealer a price. The sweet spot for an offer is 3-5%. A dealership survives on 3% profit, and it flourishes on 5%. If you make a salesperson aware of your knowledge, and offer him or her 5% above the dealer’s actual cost, chances are you will seal the deal right there. If you offer them 3% above the actual cost, then you might be in for a negotiation depending on the dealer and salesperson. A dealership will generally settle faster at 3% at the economy level (~$10-15K), but will fight longer and harder for that 5% at the luxury level (~$25K+).

Online pricing services are quite common. For a fee, they will provide you with an estimated actual cost, and they will contrast that to the new car dealer invoice. However, this is information you can achieve yourself. Simply look at the invoice and subtract the dealer flooring assistance, destination charge, and holdback, which the new car dealer invoice lists as part of its itemization. If you are aware of the rebates currently available on that model, you should have a clear assessment of actual cost.

Expect to pay 5% and perhaps a bit higher if the dealer has to order the car unless you are willing to wait for the next order cycle. For this reason, you may want to shop around for that specific color or feature. Be prepared for the unexpected. We can say that a dealer will do x, y, and z, because this is what they usually do. However, your experiences may differ. Some dealerships that do particularly well may refuse to sell at less than 5% simply on principle. In this case, take your business elsewhere. Even if you live in a rural area with limited options, you have the online options, which are just as viable as a brick and mortar dealership.

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