How much you’ll pay for a new car depends on a number of factors. Supply and demand play a major role, as you’ll have a harder time getting a good deal on a car that’s popular and scarce. However, general principles can guide you toward a price that you and the dealer can live with. Although you'll often have to pay a few hundred dollars above the invoice price, circumstances may help you get a better deal.
Where to Start
The invoice price reflects the dealer’s upfront cost to acquire the car from the manufacturer. You can find invoice prices at sites including Edmunds.com and Kelley Blue Book's kbb.com, or ask to see it at the dealership. This contrasts with the Manufacturer’s Suggested Retail Price, or MSRP, which generally is the sticker price on the car. As the car-buying resource Edmunds notes, dealers often start their negotiations with the MSRP and reduce their asking price, while buyers start at the invoice price and increase. In some cases, however, you can even start below that invoice price, thanks to items that don't appear there but add to the dealership's profits.
Actual Dealer Cost
While the invoice is the official cost, it often undersells what the vehicle actually costs the dealership. Factory-to-dealer incentives, for example, pay the dealers extra for selling a particular model. This can be a flat fee per vehicle, or escalate as more cars are sold. In addition, dealers often receive a holdback from the manufacturer. This refunds a set amount of the invoice price, often between 2 and 3 percent, to the dealer on a periodic basis for every vehicle sold. Dealers generally won’t allow you to negotiate by subtracting the projected holdback amount, but you can use the dealer incentives to negotiate a lower price.
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Catch the Model Transition
Car prices can be influenced by the manufacturer’s strategy and the time of year. For example, when the model year transitions -- typically in fall, although it varies by dealership -- you’ll generally have an easier time getting a better deal on the outgoing model than the newer one. The financial magazine Kiplinger notes that dealers often receive additional carryover incentives to get the older models off the lot so there’s space for the new ones. This may allow you to get your car below invoice if the incentives are high enough.
Go Early, and Late
If you can't wait to buy a car until the model year changes, you can still time your trip to the dealership to maximize your chances of getting a good deal. The United Services Automobile Association suggests shopping early in the week when the showroom is less crowded, and later in the day as closing time nears. This way, you're more likely to get the sales representative's undivided attention, and she may be more eager to make a quicker deal closer to the invoice price so she can get home on time. You may also have more success shopping at the end of the month or quarter as the need to meet sales quotas becomes more urgent and the incentive to make a deal increases. In addition, you’ll find it easier to get a better deal if you make dealers compete against one another. All the dealers in your area should be working from the same incentives and holdback, so they should be able to match or beat each other’s prices.
Keep in mind that the invoice price is only one factor that contributes to the price you’ll pay for the car. The automotive magazine Car and Driver notes that dealers often appear to give in on one point while more than making up for it elsewhere. For example, a dealer may reduce the price of the car, but also give you a poor value for your trade-in or a higher-than-needed interest rate. To combat these tactics, come to the dealership with financing already in place and a value established for any trade-in. With a loan preapproved from your bank and an offer from CarMax on your trade-in, for example, you can afford to focus solely on the price of the new car and avoid other distractions.
- Cars Direct: How Much Over a New Car's Invoice Price Should I Expect to Pay
- Forbes: What Are Some Good Tactics To Use To Lower The Price Of A Car While Negotiating With A Car Sales Person?
- Edmunds: Dealer Holdback
- Edmunds: Pricing Basics for New-Car Buying
- Car and Driver: Car-Buying Negotiation Guide
- Kiplinger: In Search of the Real Dealer Cost
- USAA: Best and Worst Times to Buy a New Car
- Thinkstock Images/Stockbyte/Getty Images