EXPOSED: The Sneaky Dealer Invoice Price Trick That Can Cost You Big

March 4th, 2019 by

We’re a car dealership, and we’ll be the first to tell you: The price you see on a dealer invoice doesn’t reflect reality. Here’s what to watch out for.

Let’s say you’re at a car dealership and you’re about to score an amazing deal.

At least that’s what you think.

You came in for a mid-sized SUV. You’re negotiating with a salesman who tells you:

“Wait. You could go with that. But why don’t you check out the next class up — that bigger SUV over there. Right now we’re offering a killer deal — it’s marked for less than the dealer invoice price. That means we’re selling it for less than we paid for it!”

Suddenly your head starts spinning. Sure, I could get the car I’d had in mind. But this other one’s bigger — and it’s on sale.

Heads up: That deal might not be so great after all. Here’s why.

What is dealer invoice price? (Hint: It’s not what you think.)

The definition of a dealer invoice price should be simple. It’s supposed to show the price that a car dealership paid an auto manufacturer to buy a specific vehicle.

But here’s the truth:

The price you see on a dealer invoice almost never shows what a dealer actually paid for that car.

There are many reasons why.

If you were to get your hands on a dealer invoice, you’d see a line-by-line breakdown of everything within the car. Every manufacturer uses different abbreviations and terms, but some  basic line items are:

  • The price of the make and model before additions. (For example: A 2019 Fiesta SE Hatchback.)
  • Prices for optional equipment like special tires, trims, or a cold-weather package (heated front seats, electronic air temperature control).
  • The “destination and delivery” charge, which is what the manufacturer bills for transporting the car to the dealership.

The items will have two different numbers listed next to them. One is the actual invoice cost—i.e. what the manufacturer is charging the dealer. The other is the manufacturer’s suggested retail price (MSRP) — i.e. what they say the dealer should charge you.

By the time you reach the bottom of the invoice, the gap between those figures may be a few hundred dollars. The Fiesta hatchback mentioned earlier, for example, may have an MSRP of $15,735. But Ford might invoice the dealership $15,499.

Why the difference? Every manufacturer takes the MSRP and subtracts a standard percentage when invoicing a dealer. But this number usually accounts for only a small markup.

The far bigger difference lies in things you can’t see on the invoice — things like allowances, discounts, and incentive awards. And that’s where things can get hairy (and can ruin a seemingly good deal).

What Doesn’t a Dealer Invoice Show You?

Automakers want their dealerships to move as many cars as possible. So they find creative ways to sell the vehicles for less than the invoice price.

The problem? Not all manufacturers disclose these kickbacks, including two common ones:

  1. Holdback. Each time a dealer sells a car to the customer, the manufacturer sends up to 3 percent of the car’s invoice price or MSRP back to the dealer. This usually works out to be a couple hundred bucks per car — but could be thousands on a high-priced vehicle. The dealer receives the amount in a monthly or quarterly payment later.
  2. Dealer Cash. When a manufacturer wants to move a certain model, it will dole out cash to dealers to sell as many of those cars as possible — sometimes even at a discount.

This is why a salesperson might be especially eager to show you last year’s model of a bigger SUV, like we mentioned earlier in the story.

Outwardly, it seems like you’re getting a great deal by paying less than what’s listed on the invoice. But behind the scenes, the manufacturer is offering a big incentive to move that car off the lot.

At a traditional dealership working on a profit-based commission model, the resulting kickback would put a lot of extra cash in that salesperson’s pocket. Basically: They have an incentive to point you in a direction other than your best interest.

(On the other hand, at Apple Autos we don’t operate on a profit-based commission model. Our salespeople get paid the same no matter what car you buy.)

By the end of that deal, you’d have spent more money than you intended for a car that’s bigger than you needed. That means you’ve also signed up for higher gas bills for the next few years. And that’s not even mentioning the fact that the bigger SUV might not even fit inside your garage. (Pro tip: Always bring a tape measure when you go to a dealership. Here are other things to watch out for when you test drive a vehicle.)

How to Find the Dealer Invoice Price — and What to Do With It

With all this being said,  dealer invoice price can be a useful piece of data — so long as you realize it’s not a perfectly accurate reflection of reality. To find a car’s invoice price, you have a few options.

A resource that offers figures that are close to what you’d find on an actual invoice is Edmunds’ True Market Value (TMV). It shows factory invoice prices for many makes and models, with lots of options for add-ons.

These prices may be just well-researched guesstimates. But they’ll at least get you in the ballpark. They’re good to have on hand when you head to a dealership to shop.

But here’s the easiest way to get the dealer invoice price on a car specific car: Just ask the salesperson if you can see it.

Beware of one thing if you do:

If your salesperson enthusiastically fetches that piece of paper, it could mean there are some behind-the-scenes kickbacks missing from the invoice.

Your naked eye might see a clean sheet that suggests no foul play. Or the complex jargon could make it difficult to decipher at all.

The bottom line? You shouldn’t put too much stock into a car’s invoice price. There are many variables that affect it, it’s difficult to tell how true that number is.

At Apple Autos, we’ll show you the dealer invoice price if you want. But more importantly, our salespeople have no incentive to steer you toward one car (like a bigger SUV that you don’t actually need) over another.

We don’t negotiate, and our salespeople are paid the same no matter what car you buy.

We offer one low price upfront on every new or used vehicle, and we show you exactly how we arrived at that price.

Our only mission is to help you drive off in a car you love.

We wish every dealership made car shopping this easy. But not all do. Which is why we assembled this list of 10 Questions You Should Ask Whenever You Buy a Car. They’ll help you get to the heart of the matter in your next car deal — and do it a lot faster than seeing some number that might not be based in reality.

Posted in Shopping Tips