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

TacoBella · Jan 6, 2016

ecoterragaia said: ↑

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.
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If five people before you buy at MSRP , the dealer will hold MSRP. This is what is going on in California and other densely populated areas in the NE. People are gladly paying MSRP So dealers have ZERO incentive to go lower. Hell I wouldn't drop a price unless it was a good sales and service customer. Paying MSRP for ANY vehicle is something I just never have and wont do (even on the Harley) I recently dropped my interest in a redesigned 2016 MX 5 because they were holding MSRP and my 2012 SE only has 20K and I didn't see $14,000 more in a 2016

TRD493 · Jan 7, 2016

TacoBella[OP] initial post: ↑

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.
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Great post, I bought my wife's Honda Pilot similar to this way except I called two dealers that were close to me to start off. The first dealer, in the city where I live, was such an ass I've never been back. I went straight to the second dealer and to the person I spoke with on the phone, who was the internet/fleet salesman, and received the complete opposite treatment. Within 20mins I had a deal for $400 under invoice plus the $3k factory incentive being offered on top of that. Part of the reason I believe they were so quick to go that low was I explained to them that I would be back to service it with them in the future...I was unwilling to ever use the first dealer again. I explained I knew they were still making money on the sale, maybe not much, but they would also be making money when I brought it back to be serviced, which I have ever since. About an hour later I was out the door with my new ride and felt great about the whole experience. I've since bought two other vehicles from the same salesman for about the same deal as the first one and they get serviced there as well. I also quickly learned that all the service is negotiable, so every time I take my vehicles in to be serviced I shop around for at least three quotes then call the service manager back...it's always worked like a charm.

Broccoli · Jan 9, 2016

Lawfarin said: ↑

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.
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If the thing about financing is true, how do i get the dealer to show me or tell me the actual rate that i am eligable for? I have great credit and the dealer wont go below the toyota financing rate of 4.89 even told me my bank, scotiabank will match the 4.89. Hopefully you can give me some tips to haggling a better rate.

Lawfarin · Jan 9, 2016

Broccoli said: ↑

If the thing about financing is true, how do i get the dealer to show me or tell me the actual rate that i am eligable for? I have great credit and the dealer wont go below the toyota financing rate of 4.89 even told me my bank, scotiabank will match the 4.89. Hopefully you can give me some tips to haggling a better rate.
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If your buying your best best is to secure your own financing before buying the vehicle at your bank or through another. Banks usually don't jack the rate. If your gonna go through the dealer there isn't a way to tell they are actually jacking the rate or not and they will always deny it. I'd say get a rate quote through your bank, maybe even a pre approval, then go in and tell them your pre approved. Have them run everything and see where they come in. You should be around the same rate that your bank is at. Usually your bank will have a better rate, but not always. But if you get pre approved from your bank at 4.5 and the dealer is saying 6.5 you can bet that they are jacking the approval rate. Now that will give them room to negotiate and they may be able to "magically" be able to come back with a better rate. So if it were me, I'd just go through my bank instead of using there financing. Some times though advertised deals are specials through a certain financial institution that the dealer uses. There's a lot to it and I'll be honest I don't know half of it. Just the crap I've caught on to over the years working in dealerships. There are a lot of variables.

A wise man once told me: "it's not the deal you got, it's the deal you think you got"

Bottom line, do your research and hold your ground. If you don't let them take advantage of you, then they won't. Just go through your paperwork well at the end before you sign to make sure they didn't change any of the numbers or sneak some type of warranty or package in the financing

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

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

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