A colleague sidled up to me the other day and boasted that he had just bought a new car and managed to get a heck of a deal -- $500 under what the dealer paid for the car. I smiled and congratulated him on his savvy negotiating skills. There was no reason to burst his bubble.
No way did he buy a car for $500 under what the dealer paid the manufacturer -- no dealer, or business of any kind, could stay open selling products for less than what they cost.
But my friend's comments illustrate the never-ending game that car buyers and dealers play surrounding the elusive number of "actual dealer cost" or "factory invoice" of a particular vehicle.
The truth is that few people outside the dealer's accountants and the bean counters at the manufacturer know the actual dealer cost of a vehicle.
The invoice that most dealers are happy to show you represents a theoretical price the manufacturer would charge the dealer if the dealership sold just that one vehicle. Of course most dealers sell hundreds or thousands of vehicles a year and manufacturers offer all manner of incentives to encourage dealers to sell even more.
Consider this typical scenario: A manufacturer sends out an alert to its dealers stating that for the month of February the manufacturer will give the dealer an extra $500 incentive or increased "holdback" -- an amount the manufacturer gives the dealer to offset financing costs associated with the dealership's inventory -- for every vehicle they have sold if they exceed their sales total over the previous February.
That means there's suddenly an extra $500 profit in every car they sell or have sold in February, provided they meet the new sales goal. If you bought a car say Jan. 30, you never had a shot at getting a bite at that $500.
In addition to special incentives and holdbacks, manufacturers routinely discount the invoice price to dealers based on overall volume and sometimes offer extra cash to cover the dealer's advertising expenses and other overhead.
So even after you have consulted Edmunds, Kelley Blue Book or Consumer Reports, there's almost no chance you will ever be able to determine the dealer's actual cost.
So how do you know if you're getting a good deal?
It depends on the vehicle -- cars and trucks that are in demand will always carry a lot of dealer profit, while slow-selling vehicles usually come with deep factory discounts and dealer incentives. But as a general rule, you've gotten a good deal if you're final number is within $250 or so of the publicly available invoice price. Just don't delude yourself into thinking you just tricked the dealer into selling you a new vehicle at a loss.
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