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Buying a new car is probably the most expensive investment you’ll make, other than purchasing a home. During tough economic times such as we’re facing today, you need to ensure you don’t overpay on your new car.
Understanding car dealer pricing terminology will help you to make sure you don’t pay too much on a new car. Request a free, no obligation new car price quote, to determine the best price you should pay for a new car in Virginia.
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In retail operations, manufacturers provide the retailers with an estimated starting price for a product based upon its maximum value. This is so the retailer has an idea of how much to price a particular item. In the auto industry the MSRP stands for “Manufacturer’s Suggested Retail Price” and it’s just what it says, the manufacturer’s “suggested retail” price and it’s the highest price a new car is expected to sell for. It’s not, however, even close to the fair value of a new car.
The MSRP is relatively unimportant, as auto dealerships very rarely sell a new car for the manufacturer’s suggested retail price – unless, of course, they have a new car buyer walk in who does not understand how retail operations work.
That kind of uninformed car buyer is the answer to their prayers (and wallet) and is a good example of why a new car buyer needs to educate themselves prior to speaking with a car dealer. That is, unless they want to throw away their hard-earned money and substantially overpay on the purchase of a new car.
The dealer invoice price is the amount the car dealer pays to the automaker for the cars they buy, this amount includes any factory installed options. A new car dealership will not normally share this amount with a buyer, other than to use it for advertising purposes such as offering to sell a new car below the dealer invoice price.
While the new car dealer will say the dealer invoice price is what they paid for the new car you’re interested in, that’s not entirely accurate. What they fail to mention and hope a new car buyer does not know, is that included in that price are incentives that will reduce the dealer’s true cost on a new car.
It would be pretty hard for a car dealership to sell new cars if they didn’t have any in stock for car buyers to select from. Consequently, they have to pay a lot of money to automakers upfront to fill their lots. Automakers realize this fact and assist new car dealerships with the overhead associated with keeping a large selection of new cars in inventory – it’s just not something they like to talk about.
Automakers help by charging the new car dealership an inflated ‘dealer invoice price’ for a new car, but then they return a prearranged amount to the dealership (usually between 2-3 percent of either the MSRP or factory invoice price).
They call this a ‘holdback’, because the automaker holds back this amount until the new car is sold, then kicks it back to the car dealership – normally quarterly. This benefits the car dealership in a number of ways. Car dealerships have to borrow money to purchase the new cars and they base the financing on the dealer invoice price, which includes that holdback. The higher the amount, the more money they can borrow.
When you understand that the true dealer cost on a new car is the dealer invoice price minus the holdback, along with incentives and rebates, then you have a more realistic idea of a fair purchase price.
When you request a free, no-obligation price quote, you will receive up to date pricing information for the new car you are interested in to give you that edge during negotiations.
When you know the specific times during the year when new car dealerships are extremely motivated to sell the cars on their showroom floor, you’ll be in a position to save thousands of dollars on a new car – in addition to any rebates being offered to new car buyers directly from the manufacturer.
Starting around July and into October, new car dealerships need to start making room on their lots for the following year’s car models. Automakers offer the car dealers a lot of bonuses and incentives during the year to help them reach certain sales goals, adding up to several thousand dollars. When faced with receiving no bonuses versus a lower amount on a new car, most car dealerships would rather get part of something than 100% of nothing.
Another very favorable time for new car buyers is when it’s getting close to Christmas. What are you doing in December? Shopping for presents? Well, so are most other people and consequently new car lots can look like ghost towns. New car dealerships are extremely motivated during this time of the year to simply cut to the chase and negotiate lower purchase prices. They also want to receive year-end bonus money from the car manufacturer for reaching sales goals – they have to sell cars to receive those secret factory-to-dealer incentives.
When you know how much money a new car dealership stands to lose if they don’t sell their inventory by sales deadlines, you can use that information to negotiate a much lower purchase price on the new car you want to buy.
Request your free, no obligation new car price quote to receive the most current pricing information, along with competing Virginia dealership quotes. Arm yourself with the information you need to negotiate the deal of a lifetime.
Buying a new car at a great price doesn’t have to be a hassle or stressful experience. Let us help you put the fun back into shopping for a new car in Virginia.