Wondering how much a new car should cost? Generally speaking, the answer is a few hundred dollars more than the dealer’s invoice price. However, there are some exceptions to this rule. You need to follow a process if you really want to find out how much a new car should cost.
What Does Dealer Invoice Really Mean?
The MSRP is the suggested retail price of a new vehicle, and “dealer invoice” is the price that the dealership pays the manufacturer for the car.
In the “old days” (pre 2000), there was quite a bit of difference between MSRP and dealer invoice. Dealers would fight to keep most of this money, and getting a dealership to agree to sell a car for 1-2% over invoice was pretty good. But then this thing called the “internet” started to catch on in the 1990s, and as a result car pricing changed.
Today (2018), most new cars have a dealer invoice price that’s only a few hundred dollars less than MSRP. Some brands provide more mark-up than others.
- A 2018 Ford Escape SEL with all wheel drive has an MSRP of $27,050 (depending on equipment), and an invoice of $25,834. That’s almost exactly $1200 in mark-up.
- A 2018 Toyota Rav4 LE with all wheel drive has an MSRP of $26,060(depending on equipment), and an invoice $24,366. That’s almost exactly $1700 in mark-up.
Buying either one of these vehicles for $100, $200, or even $500 over invoice is probably be a good deal. But if you want to know for sure, you need to follow the process outlined below.
How To Find the Best Price On A New Vehicle
Once you know what vehicle you want, here’s how you go about finding the best price:
- Visit TrueCar and/or Edmunds.com and look up their estimated price for the vehicle you want. Both websites come up with pricing that’s generally accurate in terms of figuring out what a fair price is for a specific new car.
- Contact a few dealers and request a quote. Most dealership websites have an easy-to-use online quote form. However, some dealers ignore the form and/or want to talk on the phone before giving you a price. If you do the dance, you’ll get the information you want.
- Check for rebates and incentives. Most auto manufacturers have some sort of rebate or special financing offer for new car buyers. Be sure to check the manufacturer’s website for special offers in your area.
- Compare the quotes and prices you’ve found against any rebates and the dealer invoice price. If you know a vehicle’s invoice price, and you know the available cash rebates, you should be able to figure out how dealers are pricing their vehicles.
This process is a bit tedious, but it really does work. If you spend a few hours checking prices, requesting quotes, and verifying details, you will arrive at a firm understanding of a fair price for the vehicle you want.
Can Dealers Sell New Cars For Less Than Invoice?
Most of the time, new cars are sold for a few hundred dollars over invoice. However, there are situations where cars are sold for less than invoice.
- Manufacturers may have a “stair step” program that reward dealers for selling volume. Stair step programs are most common on volume models, and a key feature of every stair step program is that dealers earn more when they sell more. If a dealer sells 10 vehicles, they might get $500 per vehicle. But if they can get to 11 vehicles, the incentive may jump up to $800. And so on. Dealers will often price a vehicle below invoice when there’s a stair step program to try and hit their sales goals as quickly as possible. Also, a dealer that’s literally one or two sales away from the next incentive level may be willing to offer an incredible deal if you can act fast.
- Manufacturers may have “dealer cash”. Dealer cash is basically just a rebate to the dealership that is paid when a car is sold. Dealer cash is designed to help dealerships sell stressed inventory. So, if you’re interested in a vehicle that is discontinued or unpopular, or if you’re open to buying last year’s model, there may be a dealer cash incentive that allows the dealership to sell you a car below invoice.
- The vehicle may have damage. In Colorado, for example, new vehicles are often damaged in hail storms. Most dealerships collect on their insurance when there’s a hail storm, and then use that insurance payment to discount a new car.
- The dealership may be extremely motivated to sell the car. Most dealerships want to sell every new car they get in 60 days or less. If you’re interested in a vehicle that has been on the dealer’s lot for months, you may get a below invoice offer.
Having said all of this, dealers do not usually sell cars below invoice. If your goal is to pay less than invoice for a new car, you’ll need to be patient and hope for some sort of incentive program, or you’ll need to wait for the end of the model year.
What Happens If You Can’t Buy A New Vehicle For Less Than MSRP?
If you can’t find a dealer willing to sell you a vehicle for less than MSRP, odds are good you’re interested in a vehicle that is in demand. If you’re not willing to pay MSRP, then your best strategy is to wait for demand to die down. Usually, prices decline after 6-18 months.
However, there are times when a dealership refuses to budge on price for reasons not related to demand:
- Premium vehicles. A new Porsche or Mercedes-Benz dealer, for example, will not typically discount any of their vehicles because they have a limited allocation. These dealers will often only receive one or two models in a specific configuration for the year. They won’t sell these cars for less than MSRP because they can’t be replaced.
- Limited production. Limited production models – like a Hellcat Charger at your local Dodge dealer – will not be discounted because the dealership may not get another Hellcat Charger this year.
- Limited local supply. If you live in a rural area – or a smaller community with only one dealership that sells the new vehicle you want – you may not be able to buy for less than MSRP. The local dealership is assuming you won’t travel to the nearest major city to buy a vehicle, and they price their cars accordingly.
Whenever a dealership refuses to budge on pricing, here are a few things you can try:
- Search for a car in a major metro area. If you want to buy a new Porsche, Mercedes, Ferrari, etc., check prices in Miami, Los Angeles, Houston, and Phoenix. Each of these cities has multiple dealerships selling premium brand vehicles, and these dealers are happy to sell and transport vehicles out of state.
- Make an offer on the last day of the month. Dealers and salespeople have quotas to meet, and usually the quota is based on the monthly calendar. If you make an offer on a car on the last day of the month (or maybe in the last 2 or 3 days of the month), you might get a discount.
- Try calling the dealership in the middle of a storm. Dealers are expected to sell a certain amount of cars every day, regardless of the weather. If you make them an offer in the middle of a storm, you might be pleasantly surprised. The only catch is, you must be willing to go to the dealership during the storm to pick up your new car.
As always, take your time when buying a new car. Do your research, get multiple financing quotes, and feel free to contact us with your questions.