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May. 17, 2019
What is an invoice price?
The invoice price is the initial price that the manufacturer charges the dealer. Due to rebates and incentives from the manufacturer, the price is usually not the dealer’s final cost. Freight, also known as the destination charge, is part of the invoice price.
Deeper definition
Though multiple industries use the term “invoice price,” it is especially prevalent in the auto industry. When the dealer orders a vehicle from the manufacturer, the invoice price appears on the car’s invoice.
However, the invoice price is usually different from what the manufacturer ultimately pays for the vehicle. Most of the time, it is higher than the dealer’s actual cost. Depending on their sales, dealers often receive cash incentives or holdbacks that decrease the final cost.
The holdback is a percentage of either the manufacturer’s suggested retail price or invoice price of a new car that the manufacturer repays to the dealer. It is designed to supplement the dealer’s cash flow and indirectly reduce “sales commissions” by artificially elevating the dealership’s paper cost.
Consumers frequently use the invoice price to gauge how good of a deal they are getting on their purchase. Due to these discounts and kickbacks, it is possible to strive for a lower price.
Invoice price example
The next time you shop for a new vehicle, take into account the invoice price when negotiating your transaction with the dealer.
For example, the MSRP for a new truck is $30,000. The stated invoice price for the truck is $27,000. You might think that if you can get the dealer to go close to $27,000, the truck is a great buy. But remember that the dealer usually gets even more discounts for buying the truck.
Though you likely cannot find out the exact discounts that the dealer received for the truck, you can use auto-buying tools to get an idea of both the true invoice price and what the fair market price is for the vehicle.
Is it time to trade in your old wheels for a fresh set? Check out Bankrate’s auto loan comparison tool to find the best deal on your next auto loan.
