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Invoice price: What's it really worth?

It's easy to find out what the dealer paid for a car. But that might not be what the dealer paid.
December 2, 2003: 12:39 PM EST By Peter Valdes-Dapena, CNN/Money Staff Writer

NEW YORK (CNN/Money) - These days, buyers often go into car dealerships armed with what they think is valuable insider information: a car's "invoice price."

That's the price the manufacturer, supposedly, charged the dealer for the car. Buyers are often advised to use that number as a starting point for price negotiations.

Invoice prices are no big secret. They are available online from several auto-related Web sites. But the information is not as valuable as buyers might think.

In many cases the invoice price is far from the last word on how much a dealer paid for a given car. In fact, your knowledge of the invoice price could work against you.

Picture a dealer saying this to you: "You can see for yourself how close we are to invoice; we couldn't possibly do any better." You're more likely to believe it. After all, you did your own research.

Actually, you might do better. Often, a little better. Sometimes thousands of dollars better.

Invoice price a good deal?
Some cars, especially popular models that are in tight supply, sell for close to the manufacturer's suggested retail price (MSRP) -- thousands of dollars above the invoice price -- and sometimes more than that. On one of those cars, any deal that approaches the invoice price would be a great deal.

On many vehicles, though, it is possible to negotiate a transaction price -- the price of the car without factoring in any money from consumer rebates -- that is lower than the invoice price, mainly because the dealership itself actually paid less than the invoice price.

Through something called a "holdback," dealers often get money back from the manufacturer once the car is sold. That adds to the dealer's profit and gives you more room for negotiation.

Manufacturers' holdback policies and amounts don't change often, said Mark McCready, director of pricing strategy for Carsdirect.com. They can vary from dealer to dealer, though, often according dealerships' customer service ratings.

"The holdback is still pretty sacrosanct," said Robert Ellis, director of operations for the car buying service Carbargains.org. "You don't see a whole lot of dealers going into holdback."

Holdbacks usually amount to a few percentage points of the invoice price, or a few hundred dollars.

Just as manufacturers offer targeted rebates to customers, they also offer essentially the same thing to auto dealers.

Manufacturer-to-dealer incentives are applied to specific models and they can amount to thousands of dollars, said Bob Kurilko, vice president for industry communications with the autos Web site Edmunds.com. Again, when a vehicle with a manufacturer-to-dealer incentive is sold, that money goes to the dealer.

This type of vehicle-specific dealer incentive can vary from month to month and from one part of the country to another. In some cases, manufacturers can offer manufacturer-to-consumer cash rebates and manufacturer-to-dealer incentives on the same vehicle, Kurilko said.

More is less
Also, manufacturers often add so-called volume incentives on cars. If dealers sell a certain number of cars in a given month or quarter, they get a financial reward from the manufacturer.

The trouble is, the dealer can't always predict whether it will meet that goal. So he can't know, for sure, whether to let you keep that extra money.

If you're lucky, and your timing is right, a dealer may be willing to drop that extra couple of hundred dollars in order to meet a quota and get that manufacturer incentive cash.

Ordinary cash incentives also tend to get ratcheted up toward the end of a month or the end of a quarter, Kurilko said, since manufacturers want to report strong sales figures.

"You wouldn't get any more or less profit from my dealership, but the manufacturers tend to put a little push at the end of the month," said an auto dealership sales manager who asked not to be named. (Dealership sources contacted for this story either did not want to discuss the topic or did not want to be named.)

Who knew?
So how do you know if the car you're looking at has manufacturer-to-dealer incentives on it? These incentives vary greatly from one place to another and one time to another. Unlike rebates and other consumer incentives, manufacturers don't announce these incentives to the public.

"You'll never know as much as they know," Ellis said. "But the more you know the better you're going to do."

The Web site Edmunds.com provides some information about manufacturer-to-dealer incentives. A spokesperson for Edmunds.com said most auto manufacturers had granted the site access to Web sites used by the manufacturers to communicate with dealers.

Kelley Blue Book's Web site, KBB.com, provides what it calls "New Car Blue Book" values for cars. These include the average, high and low prices people are actually paying for vehicles, as well as notes on "market conditions." The market condition information will say whether manufacturer-to-dealer incentives are being applied to a vehicle.

It's important to remember that price is just one part of a car deal.

"Invoice on some cars is a great price." said McCready. "But if you are not negotiating a very good finance price or a good price on your trade-in, it may be a terrible deal."

Experts recommend negotiating each part of the car-buying process separately: the price, the trade-in and financing. Don't let a salesperson talk you into trying to negotiate more than transaction at a time.

Dealer incentives
When an auto dealer sells one of these cars, the dealer gets a rebate.

Vehicle Dealer cash back
Volvo S60 $3,500
Acura RL $3,000
Mazda MPV $1,500
Saab 9-5 $5,000