Part One
Basic Concepts
If you’re like me, when it comes time to purchase a new vehicle you become filled with dread at the thought of being worked-over by a team of sophisticated, sleaze-ball sales reps in the offices of a car dealership. If you don’t experience that sense of panic, you should, because those guys can sell ice to an Eskimo while making him feel like they just saved his life.
In my recent quest for a new vehicle I learned that, thanks to the Internet, if you handle things wisely you can get great price without leaving the comfort of your home, indeed without ever talking to a sales rep.
In a nutshell, what you will do is gather some information about the vehicle you wish to purchase, then email the proper people. That’s it, but it has to be handled deftly in order to avoid falling prey to the aforementioned sleaze-balls as well as an onslaught of unwanted SPAM. Along the lines of sleazeball tricks auto dealers employ, you can check out this list of over 100 scams to avoid at RealCarTips.
All this presumes you already know what vehicle and options you want. In my case I did my research both online and by visiting some dealerships for information and test drives while intentionally avoiding any discussion of price except as a courtesy to one dealer who’s rep spent a good while helping me understand options and going for a test drive and who I thought deserved a shot at selling me the truck I wanted. In that case I made it clear I would be price shopping and as a courtesy in return for her kind assistance I would offer her dealership the chance to meet or beat the best price I got elsewhere.
Deceivances May Be Appearing
One of the first things you should know is that there are web sites that will show you the manufacturer’s suggested retail price (MSRP), and not only that, but the dealer’s cost, otherwise known as invoice price. You might think that armed with the knowledge of the dealer’s cost you could walk into a dealership and make a deal for a small dollar amount over that and have yourself a pretty good deal. This is what they want you to believe, but it ain’t so. On most brands a dealer can sell you a car below invoice, below “cost” and still make out handsomely!
How is that possible? Because automobile dealers and manufacturers have created a system of invisible profits for dealers. One is called “holdback”. The way it works is after vehicles have been sold, dealers like Ford, Chevy, etc. may receive a payment from the manufacturers on those vehicles. Often this is 2-3% of the MSRP. For example, let’s say you were to buy a car that has an MSRP of $60,000 and an invoice price of $55,000. It would appear that the dealer cost is $55,000. So, if that dealer said to you that they will sell you the vehicle for $1.00 over invoice, $1.00 over cost you’d think you were getting a great deal… just one dollar more than the dealer paid for the car. Wow! Well, hold on, that may be true if you don’t factor in the holdback that the dealer will receive from the manufacturer after the vehicle is sold. In reality, when the dealer gets a 3% holdback based on an MSRP $60,000 the dealer will get $1,800 back from the manufacturer. That dealer could sell you that $60,000 vehicle for $1,000 below “cost” and still make $800 on it! There are other payments dealers may receive from manufacturers for things such as volume bonuses that may sweeten the pie for them even more.
Knowing about holdback and other payments dealers receive from manufacturers may seem important in order for you to drive the hardest bargain and get the best deal. After all, knowledge is power. Still, while knowing about these things may be useful, in the end none of it really matters because it all boils down to which dealer is willing to sell you the vehicle you want at the lowest price.
I recently signed a deal on a new truck that had an MSRP of $58,910. The invoice price was $55,516, and the price to me was $53,516 which is $2,000 under invoice. If you do the math, at 3% of MSRP the holdback the dealer will receive is $1,767, reducing the dealer’s cost on the vehicle from $55,516 to $53,749. That is still $233 more than the price I’m slated to pay on delivery. So, did the dealer sell me the vehicle at a loss? Why would the dealer do that? There may be a reason. Perhaps there are other hidden payments from the manufacturer I cannot know about or that a volume bonus for the number of vehicles the dealer sells will be paid to the dealer, perhaps both.
In the next installment I will write about the online web sites I used to determine pricing and how I used that information in emails to the proper people in order to get the price I did.
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Russ on the Road 