Vehicle Invoice Price: Benefiting Dealers More Than Buyers
December 10, 2007
A new report by automotive consumer web site BuyingAdvice.com cautions new vehicle buyers not to place too much significance on the so-called "invoice price" when establishing the best price they can find on a new car.
Many web sites now offer a listing for the "invoice price" for every new car on the market, which purports to be the price a dealer pays a manufacturer for the vehicle.
However, industry experts interviewed by BuyingAdvice.com say there are many hidden factors in how this "invoice price" is calculated that make it an unreliable guide to the true price that the dealer pays for a vehicle.
Among other factors, the "invoice price" includes a mark-up that the dealer pays up front to the manufacturer. The dealer then gets this money returned from the manufacturer often in the form of quarterly bonuses. This is known in the trade as the "dealer hold-back". So on paper, selling a vehicle even at what appears to be "cost" or the "invoice price" will still return a small profit.
There are a variety of other ways in which the manufacturers can disguise the true cost of the vehicles they sell to their distributors, such as advertising support, special financing and volume bonuses.
As retired automotive executive Dan West points out, "This system has major benefits for the dealer: by artificially raising the book value of the stock they have on their lot they can borrow more money against the value of their inventory."
In addition, most of a dealership’s staff is paid on a commission-based system that when calculating compensation directly relates to the difference between sales price and invoice price. "This system narrows that gap and so the commissions the dealer pays out are lower and if times get really tough the dealership can advertise cars at ‘manufacturer’s invoice’ and still make a small profit on each deal," adds West.
This research and report was the latest in a series of articles published by BuyingAdvice.com, a consumer advice and price quote web site that provides one of the most current and comprehensive insights into the automotive market today.
