New Car Invoice Prices and Used Car Invoice Prices Explained

April 9, 2012

Find out how used and new car invoices are calculated, how to negotiate from the invoice price, and the difference between wholesale and invoice prices.

Row of New Cars

A car invoice price is the price the dealer pays the manufacturer for the car. Typically, the dealer takes out a loan through the manufacturer, so the auto maker reaps the interest benefits. Manufacturers always want their cars to sell, but won't mind if you take a little extra time. The longer it takes a dealer to sell the car, the more interest the loan accumulates.

Most dealers use these loans and expect to be able to sell the car in a short period of time. That way, they pretty much just pay what is owed and as minimal of interest as possible. This gives the dealer an incentive to sell the car as quickly as possible, even if they have to move it at or below invoice.

How a New Car Invoice Is Calculated

A new car invoice provides a vehicle's manufacturer's suggested retail price, and invoice pricing information. The MSRP price is the one listed on the window sticker, while the invoice price is the dealership's cost for a vehicle, before receiving other manufacturer to dealership monies. The most common dealer incentive is holdback, which is offered by every manufacturer. Holdback ranges from 2 to 3 percent of a vehicle's base MSRP. It is intended to help a dealership offset normal costs of doing business, like facilities maintenance and employee salaries.

Using the pricing information on a new car invoice, you can make an educated offer on a new vehicle, relative to the invoice price. The new car invoice can also be used to confirm the options on a particular vehicle. The document lists powertrain options and major option packages on the vehicle. When shopping for a new car, you can use the options listed on an invoice to compare multiple vehicles.

How a Used Car Invoice Is Calculated

When shopping for a used car, there are two types of invoices you may encounter. The first is an invoice prepared by the used car dealership. This invoice includes basic information, like the VIN number, the dealership's cost and suggested retail price for the used car. Although this type of invoice is used by some dealerships, it is not common.

The most common type of used car invoice is simply a reprint of the vehicle invoice from when it was new. In the case of a used car, the pricing information included on an invoice is of little use, unless you want to know what the vehicle cost when new. However, the option information highlighted on a used car invoice can be helpful. Reviewing a new car invoice helps you confirm the options and suggests the value they add to the vehicle. The true market value of a used car may be calculated by using a service like Kelley Blue Book.

Although new and used car invoices include the same information, they have varying purposes. While a new car invoice can be used to determine the dealership's cost and confirm options on a car or truck, a used car invoice may not be used directly for pricing.

Negotiations

Typically the MSRP is about 10 to 15 percent higher than the invoice price. If you do your homework, you can get your car for near, at, or even below the invoice price. Usually, an offer of 5 percent above the invoice price is considered a good offer. However, with car dealers needing money, they will take what they can get. Since dealers get money back after they sell the car in the form of dealer incentives from the manufacturers, even if they sell the car at the invoice price, the dealer still walks away with about 10 percent profit. If they sell a car at the MSRP, they actually make over 30 percent or more. Knowing this is important to getting yourself a good deal. Talk to the sales manager, as he may not work on commission. He can give you a better deal, since the price of the car really won't affect him. That way, you get a good price, and the dealer still makes a good sale.

How Low Will They Go?

Don't be afraid to offer the invoice price, or even start a little lower. Even if a dealer sells a car at the invoice price, they likely are still going to make about 10 percent. Remember holdback. This cost gets returned, but it does increase the invoice price. It also works to lower the income for the dealer's tax and commission purposes. You can pretty much just subtract the hold back charge from the invoice price, as it really does not affect the invoice price. Negotiations should work in your favor with this information. The more you know beforehand, the more likely dealers are to work with you. If they see an uneducated buyer, they will likely try to take advantage. You have the upper hand as an educated consumer.

Precautions

You should be vigilant at the time of purchase, as some dealers may offer a price that's lower than the given invoice price and charge an additional administration or documentation fee to make up their profits. In addition, it's important to read the sales contract to avoid duplication of certain charges such as freight. The cost of freight is generally included in the invoice price.

Research car financing options before selecting dealer finance options. To determine the best finance option available, calculate the APR (annual percentage rate) and the tenure of the loan. Some dealers may lure consumers by offering very low monthly payment options to cover the total cost of the car. This may not always be profitable, as the dealer may fail to offer a sale price lower than the listed invoice price. Although the low monthly payment appears affordable, the total cost of the car over time is well above the actual invoice price.

If the vehicle is in high demand, the dealer may fail to pass on savings to the consumer. In this case, it's best to wait for a few months until the demand decreases and the dealer is willing to negotiate.

Invoice Price Sales

Some dealerships advertise special invoice price sales during which invoice pricing is offered to all customers. Remember, if a dealership can afford to sell all vehicles at invoice price, they must be making a profit on each sale, otherwise the dealer would not authorize such a sale. Thanks to incentives like holdback and dealer cash, dealerships can sell at invoice and make a profit. Manufacturers have holdback on all vehicles. Dealer cash is not offered regularly, but when it is the dealership's cost for a vehicle is lower than the invoice states.

With an invoice pricing for everyone sale, the dealership is hoping that buyers will latch on to the invoice price being offered and think that it is a fair price. Remember, if pricing is offered to everyone, you can certainly get a better deal.

Invoice Is Our Best Price

In the heat of negotiations, some dealerships will tell you that invoice is their best price, as if they are selling the vehicle at cost. Remind them that if they were truly selling the product at cost, they probably would not be pushing so hard for the sale. Remind the salesperson that you have done research online, and you know that holdback can allow you to get a deal that is slightly under invoice. Granted, not all dealerships pay their salespeople based on net cost after holdback, but even a sale at or below invoice will result in a small commission for the salesperson and another mark on the sales leader board.

This Price Is Only Valid Today

A classic invoice pricing scam is for the dealership to accept an offer from a customer, while requiring them to make a decision on the spot. If a dealership says that the new auto invoice price is valid for one day only, it is probably best to find another dealership. Barring an expected incentive change or the end of the month, a price should be valid for more than one day. Of course, if you have completed the necessary research and determined that the offer is fair, it may be to your benefit to finish the deal. If you have not yet completed research or have not determined that the car is perfect for you, it is not worth paying invoice price for a new car of which you are not certain.

Related Questions and Answers

What Is the Cheapest Car in America Right Now?

The cheapest car in America right now is the Hyundai Accent Blue. Last year, the price was lowered to compete with the Nissan Versa. Hyundai has retained the lowest price on this year's model. The Hyundai Accent Blue is only $20 cheaper than the Nissan Versa. You need to do a close comparison and evaluation of both vehicles when deciding if the $20 is worth saving. The Hyundai is a 2-door model, whereas the Nissan is a 4-door. The amount of interior space in the Nissan appears much larger than that in the Hyundai. The Nissan's interior also appears to be better finished. Both vehicles have a limited amount of color choices available. However, at the end of the day, the Hyundai Accent Blue is the cheapest car in America.

What Is the Difference between the Car Invoice Price and Wholesale Vehicle Prices?

The wholesale vehicle prices are in reality, the prices the dealer pays the vehicle manufacturer for the purchase of cars for resale. This is also known as the invoice price. The sticker price is the recommended retail price given to the dealer by the manufacturer. The car dealer makes their profit in the difference between the wholesale price and the sticker price. Additionally, the dealer often receives rebates from the manufacturer, providing car dealers with a higher margin to negotiate a sale. However, the car dealer has costs incurred, which decrease their profit margin. The car dealer has to pay interest on purchased cars that sit on the showroom floor for long periods of time. There is also the normal overhead of any business as well as advertising expenses. All of these factors affect the bottom line, as well as the consumer's ability to bargain on the sticker price. the car dealer still has to pay the wholesale vehicle prices.

Where Is the Best Place to Find the Value of Your Car?

Find the value of your car before you decide to trade it in on a new model or sell it privately prior to purchasing a new model. Car dealers rely on the Kelley Blue Book as the industry standard for providing current vehicle values. However, the value of a vehicle is greatly impacted by and varies according to its condition. The Kelley Blue Book offers values according to vehicle condition with four ratings: excellent, good, fair and poor. Another great source when determining the value your car is eBay. A tremendous amount of vehicles are sold on eBay. Additionally, eBay offers interactive tools to determine your vehicle's current estimated values. You can also look at pricing car magazines as well as online. However, when approaching a car dealer with an offer of a trade, they are going to offer the lowest price possible to increase their profit margin. Before taking your car to the dealership, it is best to do your research and find the value of your car.

On Average How Much More Will a Dealer Invoice for Cars be Compared to Sticker Price?

The dealer invoice for cars is a form which states the amount that the dealer has paid the factory for the vehicle. This price includes the actual price of the car, plus any costs that is incurred in transporting the vehicle from the factory to the dealership. Dealer pricing will usually add any incentives, and incentives to the dealer invoice when the sticker price is calculated. If you're able to obtain a price for a car that is less than $1,500 over the invoice price, you will have been able to negotiate some good concessions from the dealer and received a very good price for the car.

What Is a Dealer Invoice Pricing?

An invoice is a type of receipt that shows what was paid for a particular piece of merchandise. The dealer invoice for a car is the same thing. It depicts the price the dealer paid the factory for delivering the car to the dealership. Most car buyers will never know what the dealer price is. When you go to purchase a car, the price that you see is the sticker price. The sticker price is the invoice price, plus dealer preparation fees and any dealer installed options. Sticker price is usually between $2,000 and $4,000 more than invoice pricing.