Automobiles: Auto Pricing By the Numbers
When purchasing a car you're bombarded with a lot of information and terminology. Here are the common pricing terms and what they mean to you as a car buyer. This first group of terms are typically found on the Window Sticker:
Manufacturer's Suggested Retail Price (MSRP) - the vehicle's published retail (base) price, without options, destination charge, or other fees. Because it's "suggested," dealers are free to sell the car at either a higher or lower amount.
Optional equipment - the features and/or packages you pay extra for. Sometimes there are no-charge options; these are usually limited to paint, interior, and transmission choices. The price of options can also be negotiated.
Destination charge - covers the cost of delivering the vehicle from the factory to the dealership. This non-negotiable fee is usually the same cost for all models within a brand, and doesn't depend on the actual shipping distance from the factory or port of entry.
Market adjustments - a window sticker line item for an additional charge to the vehicle's price, typically for high-demand vehicles (where they can make additional profit because you can't get the car elsewhere, either). You can try to negotiate this figure, but typically, they feel they can sell that car to the next person at the price they want.
Total price or "sticker price" - the total retail price for the vehicle, including the MSRP, options, destination charge, and market adjustments. Typically a salesperson will try to sell the vehicle for as close to this price as possible, less dealer discount or manufacturer's rebate.
To get the best price, however, it's better to negotiate up from the dealer's true cost (see below) rather than negotiate down from the sticker price. With a little bit of online research, you can find out the following prices, which give you as much information in the negotiation as the dealer has.
Dealer invoice price - this is the price printed on the dealer's invoice from the manufacturer, though it's not necessarily the price the dealer finally pays for the vehicle. There are often dealer incentives, and a holdback refund, that give the dealer more profit margin. Investigating the dealer invoice price can sometimes save you hundreds of dollars.
Rebate - A rebate is a direct-to-buyer incentive from the manufacturer. Since it comes from the automaker, disregard it when negotiating with the dealership. You will get the same rebate amount no matter what price you pay for the vehicle.
Dealer incentives - The manufacturer bonuses the dealer for selling certain, usually slow-selling, models. This adds profit margin to the dealer, and adds additional room for negotiation. This is how a dealer can afford to sell a vehicle for "dealer cost" or below. These programs typically don't last long and aren't announced to the public. Buyers can learn about dealer incentives on some autos-pricing Web sites or through Consumer Reports
Holdback - Manufacturers typically offer dealers a percentage of the MSRP, or a percentage of the invoice price, which is refunded upon sale of the vehicle. The typical holdback is 2 to 3 percent, so a dealer can still make a profit on a vehicle sold for "invoice," even without dealer incentives. Holdback information can be found in Consumer Reports
The dealer's true cost. This is the dealer invoice price, minus any incentives and the holdback. To get the lowest price, begin your negotiations with a starting price that is about 4 to 8 percent over the dealer's true cost. You can get a close estimate of the dealer's true cost with the "CR Wholesale Price", which is included in our new-car Price Reports.
Listing of latest rebates & incentives (cars.com)
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