What can you guys tell me about dealer markup on cars and their aftermarket packages?

Dear Car Talk

Dear Car Talk | Mar 01, 2005

2Dear Tom and Ray:

I am in the process of negotiating the purchase of a new car. I understand that the difference between "dealer invoice" and "MSRP" is the dealer's markup (or profit) on the car. Is there a similar markup for the add-ons or special packages? For example, the car I'm considering has the premium and cold-weather packages, adding about $800 to the price of the car. Is that the dealer invoice for those options, or is there a markup for that stuff, too? -- Mark

TOM: Everything the dealer sells is marked up, Mark. You even pay a 50 percent markup on the new-car smell.

RAY: Actually, there's nothing inherently wrong with that. Every retailer marks up the goods he sells, and car dealers are no different. It's just that with such a major purchase, people want assurance that they're getting a fair deal.

TOM: The closer you get to the "dealer invoice," the better a deal you're getting. Of course, dealer invoice is not actually what the dealer pays for the car. There are various "holdbacks" and incentives from the manufacturer that reduce the cost even below that. But for simplicity's sake, the dealer invoice is a good number to shoot for when negotiating.

RAY: Options have dealer-invoice prices and manufacturer's suggested retail prices (MSRPs), too.

TOM: For instance, the Subaru Forester offers something called a Premium Package, which includes leather seats and a sunroof. The MSRP is $1,700. The dealer invoice is $1,539. That's a difference of $161, or a markup of about 10 percent. That's a relatively small markup. Some options -- like special wheels, for instance -- can be marked up nearly 100 percent. So, it's worth having a look at this information before you buy a car.

RAY: When my brother bought his 1952 MGTD, he thought the markup was too high on the optional windows, so he refused to buy them. You showed that dealer a thing or two, didn't you, Tommy?

TOM: But I got my full-body, ocean-going rain slicker the same week for half price!

RAY: So, where do you find these dealer-invoice prices, Mark? That's easy. They're all over the Internet, including on our site. Just go to www.cartalk.com, and click on "research." Enjoy your new car.

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