What is the "dealer invoice price" and why does it change from dealer to dealer?

Dear Car Talk

Dear Car Talk | Apr 01, 1998

Dear Tom and Ray:

I'm planning to buy a Chevy truck. I got a price from one dealer and am now
going to other dealers to see if they will beat it. The first dealer showed
me the invoice price with all the options I wanted and added $700 to that,
saying, "That is what they have to add when they order a truck." The second
dealer cut that to $300. My question is, what IS this "invoice price"? Is
this the actual price they pay for a vehicle, or just a bunch of bull? --

TOM: It's a bunch of bull, John. Years ago, the world had absolutely no
idea what cars really cost dealers. And now, thanks to services like
Consumer Reports and others who publish the "dealer invoice" price ... we
STILL have no idea what cars really cost dealers.

RAY: The "dealer invoice" number, which is widely available now, is
supposed to represent what the dealer actually pays for the car and the
options. Armed with this information, lots of consumers think they've got
some sort of inside information. But they really don't.

TOM: The actual price that dealers pay for a car (or "dealer net") is known
only by Wayne Huizenga, the Amazing Kreskin and, perhaps, God. We do know
it's less than the publicized "dealer invoice" price. There's something
called a "dealer holdback." That's a chunk of money the manufacturer gives
to the dealer after the car is sold. How much is the holdback? We don't
know; that information is held back! They say it's another 2 percent to 4
percent of the price of the car. But who knows? There's also financing
assistance, marketing money and other money paid to the dealer and that
brings the real cost down even lower.

RAY: Maybe there's someone in our audience who has owned a dealership who
is ready (on his death bed!) to break the blood oath of secrecy and tell us
how it really works? If that's you, write to us in care of this paper, or
e-mail us from our Web site, cartalk.com. We promise not to tell
anybody else -- except for the people who read our column and listen to our
radio show!

TOM: But we know the "dealer invoice" is bull. If a dealer was selling
$20,000 cars for $300 over his actual cost, he'd be out of business in no
time. That wouldn't even pay for the coffee and donuts in the waiting room.
That's a markup of 11/2 percent. It's unheard of in the retail world. It
sounds too good to be true, and it is.

RAY: Now, that's not to say that "dealer invoice" isn't a FAIR price to pay
for a car. It may provide a pretty good guideline as to what price to shoot
for in a negotiation. But don't believe that it's the actual price the
dealer is paying. We'll let you know when we learn some more.

* * *

TOM: Well, you asked for it, and here it is. My brother and I sat down and
wrote down everything we know about how to make your car last forever.

RAY: And it only came out to eight lousy pages!

TOM:But now this gold mine of information can be yours....

RAY: Get your copy of "Ten Ways You May Be Ruining Your Car Without Even
Knowing It!" by sending $3 and a stamped (55 cents), self-addressed No.10
envelope to Ruin No.1, PO Box 6420, Riverton, NJ 08077-6420.


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