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Whats the Real Price You Need to Know?


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The Manufacturer's Suggested Retail Price is usually 6-18% higher than the “dealer invoice price" (what a car actually cost the dealership to acquire). The dealer invoice price, also known as dealer cost, is almost but not quite the “real" price you need to know.

It turns out that some income is usually assured for the dealer at an even earlier stage of the car-selling process.

Dealer invoice is what the dealer paid for the car, but when he sells it, the manufacturer typically gives him something known as “holdback, " an amount usually 2-3% of the MSRP.

This is a built-in cushion for the dealer, who, after all, has bills to pay. If you've ever seen an ad proclaiming that a dealer is clearing out cars at cost, now you know how he can be such a nice guy and still stay in business. Even selling cars at “cost" (meaning dealer cost with no add-ons), he'll make a few hundred dollars on the average new car because of holdback.

If you assume that the holdback covers the costs of doing business, ignore it and just figure in 3-5% above dealer invoice to allow for a reasonable profit-there you have a good target buy price, as a rule of thumb.

Look for a dealer with both reasonable pricing and good customer focus. A salesman shouldn't be just an obstacle to overcome in your hunt for the right vehicle. He should be interested enough in your needs to show you the types of cars that fit your requirements, point out their benefits, and be somewhat candid about where another model may offer a better alternative.

Some things that can clue you in to a customer focused dealership with reasonable pricing:

  • Ads with clearly stated terms that shy away from shouting and patronizing

  • Taglines in the yellow pages (or ads), affirming their customer orientation

  • Window stickers and advertised prices are the MSRP or less; not more

  • A good reputation with the local Better Business Bureau.

    A customer-focused dealership is important because owner-dealer interaction doesn't end when a car is driven off the lot. Warranties mean that maintenance and repair are dealer issues, and those items are usually handled at the dealer from which the vehicle is bought.

    Customer focus is extremely critical with leases because you're tied to a specific dealer for as long as four years.

    A few words to the wise are in order about where you buy or lease your car not from whom, but where. If a dealer with reasonable pricing and good customer service is available close to you, that's your preferred dealer. For scheduled maintenance and (heaven forbid) warranty repair, the easier and quicker the trip to the dealer, the better.

    Mark Avery is an author for the website About Cars Info

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