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TOV Forums > Today's Reading Links > > Re: "Dealer Invoice" a fallacy to fool consumers

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A.W.E.S.O.M. - O
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"Dealer Invoice" a fallacy to fool consumers    (Score: 1, Normal) 12-07-2012 13:45
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A great article in the USA Today on how "dealer invoice" is a misguided number to lull consumers into thinking they're getting a great deal. Really an interesting read.

An excerpt:

FIGURING WHAT DEALERS REALLY PAY FOR A CAR:
The dealer's actual cost for a car -- which will determine a price you can negotiate -- may be much lower than the so-called invoice price because of undisclosed rebates from the maker. This example uses actual sticker, invoice and holdback amounts, but then subtracts hypothetical rebates of the sort often given to dealers, showing how the true cost to dealers might be much less than the invoice price that's the popular benchmark for car shoppers.

Sticker price — $19,655
Invoice price — $18,869
3% holdback — $590
Bonus for meeting sales goal — $200
Good customer feedback bonus — $300
Bonus for selling this model — $100

Dealer cost — $17,679


More here:
http://www.usatoday.com/story/money/cars/2012/12/06/car-shopping-prices-roundtable/1749101/
NealX
Profile for NealX
Re: "Dealer Invoice" a fallacy to fool consumers    (Score: 1, Normal) 12-07-2012 14:08
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Interesting. Are these "numbers" for a particular model or brand?
A77
Profile for A77
Re: "Dealer Invoice" a fallacy to fool consumers    (Score: 1, Normal) 12-07-2012 14:21
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I don't know about the states - but dealer holdback is 1-2% here. Its stated purpose is to help cover interest costs on unsold inventory - obviously the longer a car is in stock the lower the holdback fee profit. Some manufacturers do not provide holdback apparently. There are no sales goal bonuses from honda, no good customer feedback bonuses (but BMW have them for sure here) and no undisclosed model bonuses. It's a very different story for domestics though. There is however "profit" in the freight and PDI in as far as not the full quoted cost is paid to Honda. A proportion, about 25% is held by the dealer. But is used to pay for PDI costs, filling the car with gas, etc. So not pure profit, but some.

There's far more profit in dealer doc fees (almost 100%), and all the business office fluff.
siegen
Profile for siegen
Re: "Dealer Invoice" a fallacy to fool consumers    (Score: 1, Normal) 12-07-2012 14:25
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I read somewhere a while back that Honda has 2% dealer hold-back (off base MSRP). Wish I still had the source. I researched this a while back when looking for my new car.

Haven't heard about those other incentives but it wouldn't surprise me.

I'm sure they make a profit on the other fees that are charged, such as preparing the documentation and licensing. And they'll usually try to add dealer prep and other fees on top of the purchase price.
A.W.E.S.O.M. - O
Profile for A.W.E.S.O.M. - O
Re: "Dealer Invoice" a fallacy to fool consumers    (Score: 1, Normal) 12-07-2012 14:27
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Neal wrote:
Interesting. Are these "numbers" for a particular model or brand?


They are an 'example'.

The gist of the article (a roundtable of industry experts on car pricing who were interviewed at the LA Auto Show) is that in an industry as big as autos, there's no way the key players would let 'true cost' be known to buyers - just way too much to lose.

I believe that mention in the article that in the '90s, dealer cost was 80-85% of MSRP. They say now it's closer to 95% of MSRP - an indication the manufacturers and dealers are hiding true "dealer cost".
JDMImport
Profile for JDMImport
Re: "Dealer Invoice" a fallacy to fool consumers    (Score: 1, Normal) 12-07-2012 15:08
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I think your heading is a little over the top. A dealer does not have to show you the invoice hence why it does not exist to fool customers. Dealers do pay what the invoice amount is, and holdback is paid back after the sale.

Not all manufacturers pay bonus incentives for volume or good customer satisfaction. The only constant is holdback, which is intended to pay off lot charges when most dealers have their cars owned by a bank.

I have never understood the desire to rat out dealers and have them sell a car for less than they paid for it. No other business is like that. Bottom line is if you don't like the deal you are getting, don't buy the car. There will ALWAYS be someone who pays less than you and someone who pays more.
Dren
Profile for Dren
Re: "Dealer Invoice" a fallacy to fool consumers    (Score: 1, Normal) 12-07-2012 15:29
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JDMImport wrote:
I think your heading is a little over the top. A dealer does not have to show you the invoice hence why it does not exist to fool customers. Dealers do pay what the invoice amount is, and holdback is paid back after the sale.

Not all manufacturers pay bonus incentives for volume or good customer satisfaction. The only constant is holdback, which is intended to pay off lot charges when most dealers have their cars owned by a bank.

I have never understood the desire to rat out dealers and have them sell a car for less than they paid for it. No other business is like that. Bottom line is if you don't like the deal you are getting, don't buy the car. There will ALWAYS be someone who pays less than you and someone who pays more.



You beat me to it. Dealers aren't trying to steal your money, but they certainly want the best deal for them; and you want the best deal for yourself. This is no different than anything else you purchase. McDonalds has a much higher profit margin.
RHalabi
Profile for RHalabi
Re: "Dealer Invoice" a fallacy to fool consumers    (Score: 1, Normal) 12-07-2012 15:49
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obviously! When those people brag at below invoice they are kidding themselves if they think the dealer paid that. Nobody runs a business to break even or lose. Never did, never will. Except when impending bankruptcy is soon.
NealX
Profile for NealX
Re: "Dealer Invoice" a fallacy to fool consumers    (Score: 1, Normal) 12-07-2012 16:04
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Dren wrote:
JDMImport wrote:
I think your heading is a little over the top. A dealer does not have to show you the invoice hence why it does not exist to fool customers. Dealers do pay what the invoice amount is, and holdback is paid back after the sale.

Not all manufacturers pay bonus incentives for volume or good customer satisfaction. The only constant is holdback, which is intended to pay off lot charges when most dealers have their cars owned by a bank.

I have never understood the desire to rat out dealers and have them sell a car for less than they paid for it. No other business is like that. Bottom line is if you don't like the deal you are getting, don't buy the car. There will ALWAYS be someone who pays less than you and someone who pays more.



You beat me to it. Dealers aren't trying to steal your money, but they certainly want the best deal for them; and you want the best deal for yourself. This is no different than anything else you purchase. McDonalds has a much higher profit margin.


I'll try and remember that next time I buy a $25,000 Big Mac®!
;-)
MasterOfDaDomain
Profile for MasterOfDaDomain
Re: "Dealer Invoice" a fallacy to fool consumers    (Score: 1, Normal) 12-07-2012 16:56
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Best price means the best one can get from local dealers - it may be below invoice or near MSRP - it all depends on supply and demand.
A.W.E.S.O.M. - O
Profile for A.W.E.S.O.M. - O
Re: "Dealer Invoice" a fallacy to fool consumers    (Score: 1, Normal) 12-07-2012 18:58
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Dren wrote:
JDMImport wrote:
I think your heading is a little over the top. A dealer does not have to show you the invoice hence why it does not exist to fool customers. Dealers do pay what the invoice amount is, and holdback is paid back after the sale.

Not all manufacturers pay bonus incentives for volume or good customer satisfaction. The only constant is holdback, which is intended to pay off lot charges when most dealers have their cars owned by a bank.

I have never understood the desire to rat out dealers and have them sell a car for less than they paid for it. No other business is like that. Bottom line is if you don't like the deal you are getting, don't buy the car. There will ALWAYS be someone who pays less than you and someone who pays more.



You beat me to it. Dealers aren't trying to steal your money, but they certainly want the best deal for them; and you want the best deal for yourself. This is no different than anything else you purchase. McDonalds has a much higher profit margin.



I provided the story today because many come on TOV and boast of what they paid compared to "invoice". If you read the article, it states that those customers are "least satisfied" with their purchase and that a good percentage focus on the total experience and don't drive deals "to the bone". I'm in that group ... people need to be paid.

The McDonald's comparo doesn't work though. Making 30% margin on a $3 item is a long way from making 10% on a $30,000 one. McDonald's needs to sell a 1,000 burgers for every one car deal at $30,000.
superchg2
Profile for superchg2
Re: "Dealer Invoice" a fallacy to fool consumers    (Score: 1, Normal) 12-07-2012 20:00
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There really is nothing wrong with a Dealer making a fair profit on a new car and what a dealers pays for these cars is fairly transparent.

Used cars actually are where higher profit potential exists for a dealer. Since the buyer of a used car has no idea what a dealer paid for a trade-in or car purchased at auction, it is pretty hard to know what they are making.

Some times a used car manager will make a low bid on a trade-in, especially if they already know that the new car is being discounted heavily. When this used car is subsequently sold on the lot, the potential profit can be several thousands of dollars for the dealer.

This is also why the used car and service departments are critical to most dealer's making a profit.



Dren
Profile for Dren
Re: "Dealer Invoice" a fallacy to fool consumers    (Score: 1, Normal) 12-09-2012 10:35
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A.W.E.S.O.M. - O wrote:
Dren wrote:
JDMImport wrote:
I think your heading is a little over the top. A dealer does not have to show you the invoice hence why it does not exist to fool customers. Dealers do pay what the invoice amount is, and holdback is paid back after the sale.

Not all manufacturers pay bonus incentives for volume or good customer satisfaction. The only constant is holdback, which is intended to pay off lot charges when most dealers have their cars owned by a bank.

I have never understood the desire to rat out dealers and have them sell a car for less than they paid for it. No other business is like that. Bottom line is if you don't like the deal you are getting, don't buy the car. There will ALWAYS be someone who pays less than you and someone who pays more.



You beat me to it. Dealers aren't trying to steal your money, but they certainly want the best deal for them; and you want the best deal for yourself. This is no different than anything else you purchase. McDonalds has a much higher profit margin.



I provided the story today because many come on TOV and boast of what they paid compared to "invoice". If you read the article, it states that those customers are "least satisfied" with their purchase and that a good percentage focus on the total experience and don't drive deals "to the bone". I'm in that group ... people need to be paid.

The McDonald's comparo doesn't work though. Making 30% margin on a $3 item is a long way from making 10% on a $30,000 one. McDonald's needs to sell a 1,000 burgers for every one car deal at $30,000.



Profit margin is profit margin. Mcdonalds does sell 23948723987493274 burgers, I don't think car dealerships do that... But to the point of your article, it is why the real big dealerships sell at invoice a lot of times. They sell in such volume that they make a lot of their "profit" on the kick backs from the manufacturer.

But when it comes down to it, buying a car is mutual benefit. Both parties are happy and a deal is done, if not, a deal will not be reached.
Dren
Profile for Dren
Re: "Dealer Invoice" a fallacy to fool consumers    (Score: 1, Normal) 12-09-2012 10:38
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superchg2 wrote:
There really is nothing wrong with a Dealer making a fair profit on a new car and what a dealers pays for these cars is fairly transparent.

Used cars actually are where higher profit potential exists for a dealer. Since the buyer of a used car has no idea what a dealer paid for a trade-in or car purchased at auction, it is pretty hard to know what they are making.

Some times a used car manager will make a low bid on a trade-in, especially if they already know that the new car is being discounted heavily. When this used car is subsequently sold on the lot, the potential profit can be several thousands of dollars for the dealer.

This is also why the used car and service departments are critical to most dealer's making a profit.






That's why I like dealing with dealerships when purchasing a used vehicle, especially say a Honda from a Ford dealership, or vice versa. You can really low ball because they likely bought the car very cheap.
TonyEX
Profile for TonyEX
Re: "Dealer Invoice" a fallacy to fool consumers    (Score: 1, Normal) 12-09-2012 13:53
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Dren wrote:
superchg2 wrote:
There really is nothing wrong with a Dealer making a fair profit on a new car and what a dealers pays for these cars is fairly transparent.

Used cars actually are where higher profit potential exists for a dealer. Since the buyer of a used car has no idea what a dealer paid for a trade-in or car purchased at auction, it is pretty hard to know what they are making.

Some times a used car manager will make a low bid on a trade-in, especially if they already know that the new car is being discounted heavily. When this used car is subsequently sold on the lot, the potential profit can be several thousands of dollars for the dealer.

This is also why the used car and service departments are critical to most dealer's making a profit.






That's why I like dealing with dealerships when purchasing a used vehicle, especially say a Honda from a Ford dealership, or vice versa. You can really low ball because they likely bought the car very cheap.



We often sell our used cars to the used car manager.

The price is always wholesale.
TonyEX
Profile for TonyEX
Re: "Dealer Invoice" a fallacy to fool consumers    (Score: 1, Normal) 12-09-2012 14:01
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Neal wrote:
Interesting. Are these "numbers" for a particular model or brand?


The holdback is standard. The last time I looked, AHM has a 2%. In the rear occasions we have bought a 'new' car, from the factory, we get the holdback check a couple of weeks later.

I think the other numbers are not so secret. I have seen them published in web sites. I mean, you can bet that no dealer is going to be selling a car with a $2000 rebate unless the factory is providing the rebate.
 
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