Dealer Cost and Your Offer
Steve Hague, author, speaker, and Certified Purchasing Manager
Editor’s note: Steve Hague is a frequent contributor to this blog.
It’s time to make the dealer an offer that he won’t be able to refuse. To do so intelligently, you need some idea what the dealer paid for the car you want to buy. Dealer invoice cost is the place to start.
The dealer invoice cost can be found at a number of websites including Edmunds.com and KBB.com which stands for Kelley Blue Book. Known for their used car valuation guides, they also offer new car pricing information and reviews. These websites are easy to use and have a great deal of information and cost data. Just find the vehicle you want to purchase, add options and you’ll get a set of three different costs. The only one we need to pay attention to is the dealer invoice cost plus destination charge.
The dealer invoice cost should be fairly close to the actual cost that the dealer paid the manufacturer for the vehicle. The manufacturer will also give 2 to 3% back to the dealer once the car is sold. Use this number as a starting point for negotiation and making an offer. If the dealer cost totals $20,000, I usually start with that number as an offer to purchase. As stated, the dealer will get 2 or 3% of the cost listed on the sticker price (MSRP) back from the manufacturer. I look at this as the dealer’s profit, though they’ll argue that it helps finance the vehicle while it sits on the lot unsold.
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The dealer will also most likely charge a documentation fee that can range anywhere from $100 to $300 or more. While there may be some legitimate administrative fees being covered, I find these to be excessive charges and therefore fight to withhold any further profit.
Make sure that if you’re trading another vehicle in that the value of the trade is handled separately from the new car deal. If the dealer gives you a great price on the new car price, they are most likely not giving you close to full value on the trade.
Always let the dealer know that you have other options and use them. The most important is that if they don’t honor your offer, you’ll buy from another dealer.
It’s a good idea to check with at least three dealers for price and availability of the vehicle you’re looking to purchase.