This is part of Glossary of terms for car buyers series breaks down all the terms you need to know if you buy a new one or old car from one authorized dealer.
The seller In theory, the invoice is the price a car seller pay for buy a car directly from the manufacturer and appear on the manufacturer’s invoice. Reality is a bit more complicated, as we will reveal. But it’s important to realize that the invoice price is different from MSRP (retail price suggested by the manufacturer) and also does not include any dealer price increases, transport feetaxes, title, license or any registration fees.
But what do dealers really pay?
The dealer’s invoice price is almost always higher than the actual price the dealer pays the manufacturer for a car due to a condition known as a hold – a gray, murky area that Dealers hesitate to discuss with customers – and manufacturers – reviewer credits are not passed on to customers.
Retention provides a bit of a cushion to a dealer’s profits by artificially increasing the paperwork (dealer bill) cost of a vehicle, usually by 1 to 3 percent. A withholding is a payment from the manufacturer to the dealer that is paid at some point after the sale of the vehicle, usually quarterly. Dealers will almost never disclose the amount withheld. We (and other consumer websites) recommend using it for your own reference, not as a bargaining chip in negotiations.
The problem is, this shadow grip makes the buyer think that paying the bill is getting the car at the dealer’s expense, but that’s not necessarily the case. But remember – real-world transaction prices are set by supply, demand, and bargaining skills. Negotiate invoices – regardless of withholding or discount – can be a great thing, or a bad thing. It all depends on the car.
How do agents use dealer invoice prices?
Agents will sometimes disclose invoice prices during negotiations to show that the price they have agreed to is not making them much, if at all, profitable. And after all, car dealerships are a for-profit business – they have the right to make some money out of a transaction. So the customer might think it’s fair to pay the listed bill plus a few hundred dollars for the agent to make some minimal profit from the transaction.
However, as you have seen above, with the credit withheld and the manufacturer to the dealer, the invoice price is very likely to be inflated. This makes their negotiating tactic more successful, as the customer may think the dealer is delivering the vehicle to them at or near the same price. One authorized dealer able to sell a car at or around the invoice price and pocket the dealer’s withholding we mentioned earlier as their profit on the vehicle.
So it’s not always in your best interest to negotiate the dealer’s invoice price. Many times, other discounts can cause your purchase price to be much lower than the actual dealer bill – namely Read offers and discounts from producer to consumerThis does not affect the dealer’s profits but can make your actual price much lower than the quoted invoice price.
What does it mean for your wallet?
The invoice price is a good place to start determining your actual cost, as you can get an idea of what your actual costs will be by estimating what the debt might be. And by shopping around, check your bottom lines with real-world sales data (like Edmunds TMV or Autoblog Smart Buy Price), and applying the manufacturer’s offers, you could get a deal for less than the bill listed.
But you shouldn’t storm the dealership and demand payment of the dealer’s bill on every car. Some dealers may not be able to sell a hot-selling vehicle anywhere near the invoice price. The hotter a car gets, the less bargaining leverage you have. And the opposite can also be true. Invoices represent a useful basis for thinking about what you should pay, but it’s not the final word.
