The "redesign of the "Dealer Invoice" price with the arrival of the Internet.

I bought this guys book on Kindle. He explains how and why the Margin between "Invoice" and MSRP went from 15% to 5% since 1995. I was told by my Honda dealer where we leased a CRV they can make money all day long selling at "Invoice" (That number which is readily available on many "auto buying services") Which sent me on a quest to find real invoice.......in vain.

His website is http://www.fightingchance.com/

James Bragg has a great book "Letting the Cat out of the Bag" about shopping and buying vehicles in today's environment. I have it on Kindle. Much of what I will write next I learned from the book.

Bragg does a great job of explaining "the new way" Dealers operate using back end money and basically ignoring Invoice price as they WILL bring the Invoice sheet out and cry the blues at the thin 5% margin all the while knowing they will earn 10% or more in bonuses and holdback (which is going away too) if they make sales. People don't realize, Audi BMW, Jaguar, Scion, Mercedes, and Infiniti dropped the holdback in 2013 and 2014. Why? Because we know what it is !

Ask them for an Invoice from a 1995 Tacoma showing a 15% margin......Would they really give up over 10% on gross profit over 10 years or so? I think not.

Lets not forget that it is the dealer who releases "Invoice" information to the various car buying lead services PAID BY DEALERS like KBB Edmunds, Consumer Reports etc....

"Since the arrival of the Internet, automakers have removed 40%-73% of the visible gross profit margin built into the sticker price and made it invisible by hiding it in the Invoice price dealers pay initially, where it can be funneled back to dealers in below the line bonus programs invisible to buyers"

Maybe this will help a few perplexed by pricing.

In the book he discusses how the holy grail (and Imposter) is the "Dealer Invoice price" because that's where we were conditioned to negotiate from when it was a real number.

Most of us already know Invoice is NOT what the dealer paid. It's an imposter posing as the genuine number. But it's all we have which is why I personally will not pay more than $500 over Invoice (even on a hot vehicle) INCLUDING the DOC FEE (which we already know now is just an addition of Gross profit and not earmarked for "DMV paperwork" like it use to be). Hence the "online, Costco and trueCar prices" we are told are great deals in fact won't make dealer's unhappy...(In fact I have used their inflated used prices to sell privately)

But worse than that, How credible can online consumer "friendly authorities" (KBB,NADA,Edmunds et al) be when they have ignored the fact that for the past 18 years margins have been squeezed between "Dealer Invoice" and MSRP? BS BS BS.

Why have we not read about that from our "consumer help" buying sites?? Surely a 15% -6% margin squeeze is something we should have read? "Nevertheless, THAT kind of squeeze in reality would be catastrophic for any business! We also know from experience the dealers claim poor when they claim their margins are being squeezed. In reality from Invoice to MSRP they HAVE!! However....

They are making the same margins or more than they were making 18 years ago. They surely would not and did not give up 10% profit in 15 years!! ....The true cost is not transparent like it used to be. We have been fed a bunch of crap buying at Invoice is a great deal while the dealer STILL makes 10% and more profit. They are actually making more per vehicle selling at "Invoice" today than 15 years ago when people negotiated a much lower $$ over the then 15% invoice.

NO retail business can stay solvent if it's cost of goods sold were 90% of it's sales" "A retail store needs 12-15% just to meet overhead".

So why don't FOR PROFIT internet sites like Edmunds, KBB, Carsdotcom AutoTrader and all the usual "consumer based" Including Costco and Consumer Reports (shame on them as of 2011 Consumer Reports gets their "numbers" and pricing website from TrueCar and Makes their membership pay EXTRA for what they can get going to TrueCar)........ so much for their advocacy and honesty "Consumer Reports charges their subscribers for basically a trip to a well disguised TrueCar site!!!"

So why don't "consumer car buying websites" tell us the real price dealers are paying? Because they get $300 a sale from someone who links from their site to the dealer. Obviously They are on the dealer's side. They reveal Invoice like its some secret way to buy a car....When in fact it allows the dealers more profit than they may have made with a good negotiator back in the 90s when Invoice was Invoice.

Do we really think Owners with a 5-10 Million Net worth in their business is going to reveal true cost of the vehicle we are looking to buy? Or common well known Auto buying sites that get paid to send leads? True car did that at one time and was reamed by dealers for it and now they have changed their business model to favor dealers.

So how do we as consumers win? Timing. Getting six bids, Hoping the dealer is a few sales away from a huge bonus for the time period (in which case they will sell the vehicle at a loss to earn perhaps another $1000 car they sold that quarter,

A dealer who is at 900 vehicles and needs 10 more in the specific period (six months), WILL be selling at below invoice as they will get up to $1200 per car sold in the period which can add up to big bucks fast.

That is why I believe some of us paid Invoice or slightly above when we ordered our Tacomas for delivery in 2015. Its not that we are great negotiators in as much as the dealer may be close to a huge bonus and lets some of their better customers off the MSRP hook, or ALL of them if they are really close. Bonuses can total $500K in a period. That's a sweet spiff. You can imagine if you are the guy whose sale gets them an extra $100K they wil not let you go and will lose $2000 to make $100K more or less..

My dealer got a huge bonus per vehicle sold for the fourth quarter. My sale helped get them there as did others after mine. People were still paying MSRP here for Tacomas though which the dealer loves. But likely sold other vehicles deeply discounted.

The factory can release "recap money" of $600 per vehicle sold that month as well. and yours is the sale they need,,,,,resulting in someone like you or me getting a huge discount even on a hot vehicle (like 16 Tacoma) for a sure sale. Then there is the 'turn and earn' where the automaker sends dealers more allocations for each one they sell. This works well on "hot" vehicles as well.

Kerbecks sells more Corvettes than any dealer. Why? Because they sell at 8% or more discount and thusly sell more and are allocated more Corvettes than any dealership in the USA. They also will not keep trade in Vettes more than a week before wholesaling them.

THE CSI Survey cannot be ignored in the buying process as the dealer can lose a pile of money on the bad ones. Sales AND Service.

They want you to pay MSRP and LOVE THEM for it!! They may also need another good CSI score to get mo money....Hence another great deal for someone. A dealer can earn tens of thousands in a month of perfect CSI scores.

This is why it is important to get MULTIPLE bids (at the end of a period month, quarter, half, or full year of sales). You never know which dealer is close to a mega bonus and will send a very nice price our way.

So the next time you get a Costco price on a vehicle, know the dealer LOVES that price as it is above Invoice ( and does not take into consideration dealer add ons like Mop and Glo, tint etching, for $1000 more which not only increases his sales profit number, but ensures good SCSI as the customer thought they got the best deal .....He also makes 5% or more on the sale plus the inevitable bonus money and perhaps a Lot more Everyone is happy.

Except me. I don't go for those pre determined prices. I use the internet to get bids which will reveal the dealer closest to making a bankable bonus on every car sold in that period. I want to be that gut who puts them over the top. I negotiate LIKE I am that guy anyway. I assume my sale is the one that gets them close.

 

Subbed for later read

Thanks for the share

 

We had to expect this was happening...

Back when you could get a very close to "real" invoice price off the internet, dealers had to have gone to the manufacturer to figure out how to combat this. Like the guy says, the dealers exist to make a profit AFTER paying the bills, if not they won't be in business long.

 

Makes sense. Thanks bella

 

Good post. It's the only logical explanation why this is happening. Thanks.

 

Thanks, great info. Now I am glad I walked away when they would not give me 500 over invoice.

 

Automobile pricing, almost like the Mob running back door deals, skimming here, stealing there, and everyone thinks they have this whole racket figured out, then they just change the rules without letting you know about it. I'm glad everything we buy isn't like car buying, life would suck. We would spend half our lives haggling over prices.

 

Cliffs notes;

Dealer Invoice is no good, they are still scamming us.

Does this still work in Canada?

 

I didn't read the entire OP post because it was so long and I just woke up.

However working at a dealership (not sales) here's what I can tell you. There is always money to be made "back end" there are a lot of times where sales will claim they only maybe $100 selling a car. While this may be true in a way, they still make money in several outlets.

First your trade. Very rarely will any dealer give you retail for your vehicle. In fact they usually won't even give you KBB blue book. A lot are using this pricing called black book. Most vehicles need some sort of repairs getting traded in and the dealer makes sure they won't lose there ass buying one. Sure sometimes they but themselves in the ass

Next, when your buying and financing they have a lot of ways to make money there. 3rd party warranties, wheel and tire packages, paint protection treatments, glass etching, ect. All these variables the dealer gets kickbacks. Our dealer group even owns there own warranty company so they can get better deals and it's another source of revenue under another business name. As we own our own Napa store and a few other ventures. (Smart).

Also a lot of times your approved for a better rate by the bank or financial institute then they tell you originally. This gives them room incase a customer wants to haggle. They get an extra kickback from the banks selling you a loan at a higher rate.

Another way they make money over invoice is selling sheer volume. Sure Maybe they really only did make $100 dollars on the front of the deal. But let's say Toyota wanted them to sell 15 tacomas that month and they sold 35. Well the manufacture rewards them with incentives just like they do customers. Usually varies month to month and they usually get some year end kickbacks depending on volume sold throughout the year. That's why dealers will step on other dealers toes to get a sale out the door. Even if they claim they are really loosing money or making very little.

 

This was a great read. I'm doing some negotiating on a 2016 Tacoma today. I've done a bit of research but this helps build my confidence when asking for 2k+ off MRSP.

 

There is no reason why you should be paying anything other than invoice on a new vehicle. They still pay the bills and make profit and you leave happy.

 

Good to know. I'll shoot for invoice then.

 

I made the mistake of paying full MSRP when I bought my first truck. I did not even know I could negotiate on the price. I asked the salesman what the price was, it sounded okay to me and we started doing the paperwork. Of course that will never happen again - live and learn.
Since then I have bought about six other vehicles new and have never paid a penny over invoice; usually significantly below invoice. As said above, they still make their money. The salesman lose on commission (I think usually they get a percentage, but once it goes under invoice it changes to a flat rate - at least so I have been told), so no matter how much under invoice, the salesman doesn't really care anymore (managers may still care). I have timed my purchases at the end of quarters, and sometimes tell them my price, and leave - they call me back a week or two later when they need to make the sale to make the bonus as described in OP above. On the last two minivans I got 20% and 17% off MSRP, and the dealer still had a smile on his face when I drove off the lot - I am still trying to figure out where he got me! maybe the extended warranty and the expensive Scottsguard interior treatment they sold me.
Anyways, there are good deals out there....

 

Good info here thanks!

 

He probably went up a tier and got manufacturer bonuses in his pocket.

 

Just like dealers are getting back end money, Salespeople are making the same they did in the 90's before the "Invoice up creep". They, like dealers, get bonuses based on numbers sold.

PLUS they make money on the gross on profitable used cars which often have a 30% mark up from the ACV trade value. They can knock 15% off and STILL make a good buck. On new all they have to do is numbers. Many will pay MSRP because they don't want the hassle of negotiating or they succumb to the "hot car" on the lot and want to be among the first to own a hot vehicle.

(This is where loyalty to a dealership helps. I am convinced I received my price because I bought four vehicles from my dealership) People I sent to them did not get the same deal which led me to tell my sales guy I won;t be sending anyone else to get reamed over hot coals. If they cannot offer at minimum $1000 back of REAL Monroney sticker I won't send anyone. I sent them four prospects. Mone were able to make a deal close to mine. So I sent them to Florence Toyota,

 

When I bought my Subaru, the first thing the sales manager did was bring me a copy of the invoice, and said he could knock $700 off of it. He then volunteered that he would take advantage of a factory incentive to make a profit. I was very surprised that he started off negotiations this way, as the invoice price was already $3000 less than the MSRP listed on the window sticker. Not sure if this falls into the category mentioned above about meeting certain numbers at the end of the month, as it was May 29th, or if it was because I was buying one of the last 6sp manual Outbacks that Subaru made because they're so unpopular.

 

hahaha. good story. I peeked at the Costco prices for Camrys and they were $800 below invoice. Not so much for Tacomas tho

 

I just ordered my 9th since 1999. I tried a different dealer first time out and landed a good deal. I was happy with that and didn't even wanna bother with my local dealer. Still, I figured I owed it to them to at least make me an offer, as I bought a 2007, 2008, 2010 and a 2012 from them, all brand new. They wouldn't even touch the first deal I got. The sales person was very nice and extremely professional, but in my case at least, I could have wiped my ass with Dealer loyalty. Poor guy did his best, but they were literally almost 4K off. He politely told me that they couldn't touch that deal and recommended that I take the offer, which I did and promptly placed my order.

 

Well its not 100%. I bought my 08 from a dealer 100 miles away as I could not make a deal locally. When they saw my truck, they have since given me deals I could live with. But I had to offer $500 over invoice....I showed them an email with a straight invoice price on three Tacoma models ( Limited 4x4 was $36660 OTD) from a dealer 80 miles away. In this case I gave my local dealer the business and offered $500 more. They accepted that