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Invoice Price vs MSRP – Understand the Difference and Save Big!
Car negotiations can be confusing because the value of a new car is not necessarily set in stone. The negotiated purchase price of a particular make and model at one dealership may be different from another. However, with the right information, you can use this wiggle room to your advantage and negotiate a deal much lower than the advertised cost.
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Invoice Price vs MSRP- Know the Difference!
An important fact to know during car negotiations is that the invoice price and manufacturer’s suggested retail price, or MSRP, are not synonymous. Remember that the car dealer is the middle man between the manufacturer and you, the customer. For the dealer to earn a profit, the customer must pay more for the vehicle than the dealer paid.
The invoice price is the predetermined cost of a new vehicle. The manufacturer sets a price for the basic configuration of a particular make and model, then includes the cost for additional features, such as air conditioning and automatic transmission, for each individual vehicle. Theoretically, the dealer would pay the invoice price for a new car, but similar to negotiations between a customer and salesman at the dealership, the manufacturer frequently offers special incentives and holdbacks. As a result, the final sale of the car is commonly less than the calculated invoice price.
The manufacturer’s suggested retail price is not a concrete value, but a guideline based on features of the car and location. Always consider location when checking the price of a new car because the more popular a particular make and model is in one region, the higher the MSRP. Although the dealer is legally obligated to display the MSRP on every new vehicle, they are not obligated to charge that price. The sticker price is usually higher than the MSRP because the dealer wants to earn as great a profit as possible. Understand invoice price vs MSRP, so you don’t fall into the trap of paying more than a car is worth.
Use the Dealer Holdback to your Advantage
An important reason to understand invoice price vs MSRP is the existence of a dealer holdback which is built into the invoice price. This is a predetermined amount usually around 2-3% of the invoice price or MSRP. The dealer pays this inflated amount under the agreement that the manufacturer will reimburse the dealer this holdback once the vehicle is sold. This agreement may seem superfluous, but benefits the dealer in a number of ways.
Although the dealer initially pays more for a vehicle, the dealer holdback reduces the actual cost to them, so even if they sell a model at the dealer invoice price, they will still be making a profit. During negotiations, it’s best to understand how the dealer holdback works, but not to mention it unless the dealer claims he won’t earn a profit from the sale. Obtain as much information about car negotiations in advance, but be careful how you use it; the smarter you are during negotiations, the better your deal will be.
Make Car Dealerships Compete so You Get the Best Deal
Understanding invoice price vs MSRP isn’t the only tool you should use during car negotiations. Some additional tips can save you hundreds, even thousands, of dollars on a new car. Before walking into a dealership, request multiple online price quotes. Keep all this information organized, so it’s easily accessible, and always ask if a dealer can beat your best price. Even if they already claim to offer the lowest quote, you never know exactly how low they’re willing to go unless you ask.
Car dealers may not intend to deceive and manipulate their customers, but they still utilize tricks to increase the sale and earn a greater profit. Do your research beforehand to avoid these tricks and negotiate the best deal you can on your new car. Get started on your new car shopping today by requesting your free new car quotes online, its quick, easy and best of all its 100% free and you are never under any obligation to buy!
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