Regresar al GuidesMSRP vs. Invoice
The difference between these two new car price points varies widely in both dollar amounts and percentages. For example, an economy car in the most basic trim with little to no options might only have a $500 difference in price from MSRP to invoice. On the other hand, a luxury SUV might have thousands of dollars of profit between the invoice and MSRP.
Popularity counts too. An in-demand vehicle will usually have plenty of profit padding between the invoice and MSRP. However, you may not be able to cut into that profit if the car is trendy in your area and the TMV is close to MSRP.
Window stickers on new cars have many descriptions of the vehicle's performance, features, and fuel economy. It also lists various prices for the car. But the last two are the most important: the invoice and MSRP.
Knowing terms such as MSRP (manufacturer's suggested retail price) and invoice are essential when car buying. Even though some emerging companies such as Tesla, Polestar, Rivian, and others work with no-haggle buying, most automakers still use conventional dealerships that essentially get to set their own prices.
But even these are muddled through various incentives to both the customer and the dealership. And these deals might not even be advertised to consumers. All of this leaves buyers with a sour taste about the traditional new car buying experience.
However, there are ways to prepare before contacting a dealer, enduring the negotiation, and signing on the dotted line. These steps could prevent you from having buyer's remorse after seeing the same car for less than you paid somewhere else.
Here's a primer on these terms to help you understand the true cost of a vehicle when you're negotiating for the best price on a new or used car.
What is the Invoice Price?
The invoice price or factory invoice is what the dealer paid the automaker for the new vehicle. However, there are many caveats to invoice pricing, the main one being that the consumer rarely finds out or is told the entire truth about how much the dealer paid for the vehicle without asking.
That said, it's relatively easy to find the invoice price on various websites, and it's listed on the breakdown of the vehicle cost when you start looking at financing options. So the invoice price is available, but you might have to hunt for it.
But knowing the invoice is critical to negotiating within reasonable terms because throwing out lowball figures is an easy way to get dismissed. At the same time, not seeing the difference between the invoice and MSRP might not get you the best possible deal. So again, using the internet and a careful eye helps matters.
What is the True Market Value?
True Market Value, or TMV, estimates what people in your area pay for a particular vehicle. The actual number of True Market Value is just an average, though, so you may pay less or more than this number. Usually, the TMV is somewhere between the MSRP and the invoice price of a vehicle. However, if the car has a high demand, the True Market Value may be at or above MSRP.
For example, four-wheel-drive SUVs tend to be in high demand in the winter and in areas where it snows. And convertibles and sports cars are popular in sunny places in the summer. These are examples of times when these vehicles will have a higher true market value than if you wait until seasons when they are in less demand. In that respect, it's like booking a plane ticket. Therefore, the TMV can vary somewhat between regions and the time of year, and you should plan accordingly. For example, suppose you can hold off on a new vehicle purchase (especially during the current chip and supply chain shortages). In that case, it's possible to save a significant amount of money than just by going out one weekend and buying something from the closest dealership.
What Does the Official Price Tag Say?
Every car should have a paper describing its features and listing the vehicle identification number (VIN) and the asking price. You should be suspicious if that information isn't immediately available.
On a new car, this is called the Monroney sticker. For more than six decades, it's been used to list the features and price of a new vehicle to disclose everything about it. But crucially, it also details what the manufacturer thinks is a fair price to the consumer.
But the number in the bottom right corner of the sticker is just that: the suggested price based on the manufacturer. It allows for enough profit (usually between 10% and 20%) for the dealer and some cushion to absorb any incentives — offered by the dealer or manufacturer — and some negotiation.
And it's the price in any advertisements online, in print, or on TV.
This document on a car's window looks very official and eye-catching. It's also the price that the salesperson will try to start negotiations. That official price tag is meant to influence you, the buyer, into thinking that it's the car's actual price.
What Does Invoice Price Mean?
On the other hand, the invoice price is harder to define. All vehicles are shipped from the manufacturer with invoices, which the dealer will pay for the cars. The dealer receives the invoice and is billed for the price therein. If the dealer sells the car for over what they paid for it, the rest is their profit. Therefore, buying a vehicle for the invoice price or even below is possible.
Sometimes there are incentives from the manufacturer to help the dealership sell certain cars. The invoice from the manufacturer isn't exactly an easy document to read either. It's usually covered in numbers and abbreviations that are only clear to auto insiders. However, it does include the base price the dealer paid, plus any fees for advertising and the like.
The dealer would never show a customer the invoice at one time, but many car dealers have become more cooperative in showing the invoice in recent years. It's a good idea to ask politely to see it rather than demanding it.
Incentives reduce the vehicle's invoice price by allowing the dealer to make money even if they sell the car for the invoice price. These incentives might come as rewards for a specific sales target, or they might be offered to boost sales for certain vehicles. A dealership does not have to pass these savings to the customers. It's also tricky to determine when dealer incentives exist because they usually vary by region.
What is the Rough Invoice Price?
Often you will hear the invoice price described as roughly the price the dealer pays for the car. Why is it only a rough price? Because manufacturers designate a holdback price for most cars. This holdback is a certain percentage of the invoice or MSRP. The manufacturer then pays this to the dealer when they sell the vehicle. So the dealer might tell you they are not making any money on selling a car at the invoice price.
But the truth is that they'll be getting a check from the manufacturer after the sale for whatever the holdback amount. So that's why buying a car for the invoice price is not necessarily true if you pay the absolute minimum you could pay.
What Exactly is True Market Value?
The TMV, used by Edmunds.com, is a price point that gives car buyers a number more important than MSRP or invoice. This number is significant because it's based on analytics that determines the vehicle's popularity in a particular market, what the car is selling for, and an average of what buyers are paying. Generally speaking, the TMV is lower than the MSRP but over the invoice price.
TMV is an average of prices. That means some buyers pay more and others pay less. Nevertheless, it should give you a good idea of what to expect.
What's the Blue Book Value?
It is another term you might hear when shopping for cars. The blue book value refers to the price assigned by Kelley Blue Book to used vehicles. However, that isn't necessarily a term you need to know when shopping for a new car. KBB gives values to used vehicles based on various criteria. Dealers often use these car pricing values to make offers on trade-ins. KBB lists both trade-in values and private party values.
If you're trading in an old car, you can get an idea of what it might be worth by checking KBB before going to the dealership.
What are Advertisement Fees?
Regional ad fees are usually listed on the dealer invoice and are typically not negotiable. Manufacturers use these fees to recoup the expense of marketing certain vehicles. If you see these fees on a dealer invoice, you can expect to see them on the final sales contract. If, for some reason, the dealer doesn't include these fees on the invoice, but they are on your sales contract, then you may be able to negotiate out of them.
What is a Destination Charge?
A destination charge is a fee to transport a vehicle from the manufacturing plant to the lot to be sold. This expense is charged to the car dealership and the dealer, in turn, passes it on to the customer. The amount of this fee is usually some hundreds of dollars. Like ad fees, these are fixed costs that aren't negotiable. The amount only differs depending on models and not how far the vehicle had to travel.
What is Manufacturer to Consumer Incentives?
The manufacturer also has some rebates and incentives for new cars to pass on to consumers. These usually come as low-interest financing, cash rebates, or special leases. The cash rebate can generally be used as a down payment, which reduces the price of the vehicle.
There are various calculators online to determine how much money cash rebates or low-interest financing can save you in a particular situation. However, remember that even if it's low interest, you will still pay more for the vehicle over time due to the interest.
What is True Dealer Cost?
The formula for the True Dealer Cost of a vehicle is comparatively straightforward. First, take the dealer invoice price and subtract the holdback and any rebates or incentives, and then you have the dealer's actual cost. But, of course, this assumes that the dealer shows you all this information in the first place. They may not.
Where is the Profit Margin?
The profit margin for any dealership and any car is the amount they sell the car over what they originally paid. That's why dealers often want to use MSRP as a negotiation starting point. The sticker price is already a markup, and if they can get more than the sticker price for a vehicle, that translates to more profit. In some cases, dealers sell the car for a stated invoice price, but it's still possible to profit if there are incentives for selling the vehicle.
Finding the Invoice Price
Technically, finding the invoice price isn't all that difficult. It's more a matter of whether this is the price the dealer paid for the vehicle. However, as previously mentioned, there's a lot of flux depending on regions and incentives.
However, you can usually find the invoice price on Edmunds.com or KBB.com. A good strategy is to start with the invoice price in negotiation while keeping the vehicle's TMV in mind. The sales associate and finance department will want to stick as close to the advertised price as possible to maximize commissions and dealership profits.
Here's the bottom line: knowing as much as you can about the terms that car sales associates throw around when you're negotiating to pay as little as possible above the car invoice price can be helpful toward reaching a final price. Getting the best car at the best price and avoiding dealer charges can lower your overall monthly payment and total cost of purchasing your new vehicle.
