Knowing all of the terms you’ll hear during the car buying process can really help you make an informed decision. Take a look at the following terms and learn the basics.
Dealer Added Options- Be wary! Dealers offer a lot of “extras” that do not come with the car. Added options are where dealers make huge profits, because many cost them very little. Some you may need, many you will not! Decide which ones are important to you and which ones you can do without. For example, window etching, heavy duty batteries and undercoating offer little value.
Dealer Holdback- A small percentage rebate that the dealer gets from the manufacturer on each sale, usually put towards the next vehicle purchase. It is an extra savings for the dealer that does not show up on the Dealer Invoice.
Dealer Invoice- This is the invoice that goes to the dealer with each vehicle. Although the invoice can get quite confusing, the two numbers you should be concerned with are the “Invoice” and the “MSRP”(see sticker price below). Invoice will give you an approximate cost that the dealer paid for the vehicle. Keep in mind this does not include dealer holdback (see above) and incentives, so it is not the true price the dealer paid for the vehicle.
Factory Incentives- Put simply, these are incentives that the manufacturer gives the dealer to sell their cars. This is usually due to an overabundance of inventory, and therefore a need to move the vehicles quicker. Cars that are poular and move quickly are less likely to have incentives for the dealer than less popular ones. Factory incentives and Dealer Holdback(see above) are two of the main “extra savings” for the dealer that do not appear on the invoice. This is why you never know exactly how much the dealer laid out for any particular vehicle.
Sticker Price-Also known as Manufacturer’s Price or MSRP (Manufacturer’s Suggested Retail Price), the sticker price represents what the manufacturer believes the car should sell for. This price is almost always negotiable. (As of this writing, Saturn is the only company we know of that does not negotiate off the MSRP. You can figure that the difference between the sticker price and the dealer invoice (see above) is anywhere from 10-12%.
Research a new car and get a free price quote. Start here.
Five Things to Keep in Mind
Resign yourself to the fact that it’s rarely going to be completely smooth. That is because no matter how well you arm yourself with information, the dealer still has things up his (or her) sleeve that make it a little more complicated than you would prefer it to be.
B. You are never going to know exactly what the dealer paid for the car, because in addition to the rebates and special offers that you may see advertised, there are dealer incentives that you never know about.
C. Don’t spend extra money on unnecessary items. There is no need to fork over an extra $500 for an alarm system that costs the dealer $50. Most cars today come with a perfectly respectable alarm or security system. Don’t pay an extra couple of hundred bucks for a “heavy-duty” battery, unless you’re planning to tour the North Pole.
D. Even though you may have a list of what options you really want, your list may not match the majority of cars that come off the assembly line. You see, the manufacturer thinks they know exactly what you want, and that’s the way they build most of their cars…so if you want something a little different, you may have to wait for it. Your dealer can either order a car to your specs (which means you will wait a long time for it) or he can try to swap with another dealer who may have that particular car(with the option, color, etc.), that you want.
E. Don’t have any qualms about being forceful with the dealer. Believe us, they need you, a lot more than you need them.
Good luck with your purchase!