Entering a car lot can feel like you entered a different world. However, most industries have their customs and unique trading terms. Indeed, not knowing the language and vocabulary of the car business can put you at a distinct disadvantage. Learn the basics from the list below:
What does the manufacturers sticker mean?
Sticker price, Manufactures Suggested Price, MSRP, Maroni and Tissue are all words for the price the manufacture thinks a new car should sell for. With all product lines except Saturn, this price is negotiable. There is an average of 12% mark up from invoice (Approximate dealer cost, see invoice) to MSRP. Less expensive automobiles have a lower percentage of profit. Luxury automobiles usually have a wider profit margin.
The sticker price is usually located on the bottom line of the factory window sticker and says, “Manufacturers Suggested Retail Price” Any other sticker will have a bottom line price that says “Dealer asking price”, “Fair market value” or something along those lines. (See dealer added stickers.)
What about dealer added stickers? (Addendums)
Dealers will often add a sticker to the factory MSRP price. Sometimes it even resembles the factory sticker. However, rest assured it is not. It is the dealer’s asking price. Dealer sticker asking prices are almost always inflated. So don’t pay too much attention to them. In fact, its smart to inform your salesperson up front that you will not be negotiating from the dealer’s sticker. On the contrary inform them you will be only negotiating from the dealer invoice.
What is dealer invoice?
Invoice refers to the actual invoice that the manufacture sends to the dealer with the vehicle. Each vehicle has a unique invoice. The Vehicle ID number on the invoice will match the vehicle ID number on the vehicle. On the invoice you will also see the MSRP price. Many invoices are confusing; there will be many different numbers. Somewhere however at the bottom will be the “Invoice” and “MSRP” price. It is the invoice price that you want to work from. The invoice price does not reflect true dealer cost due to holdback and factory to dealer incentives.
What is dealer holdback?
Dealer hold is usually around 1.75% of the invoice price. It is what the manufacture rebates back to the dealer. This is one of the reasons why the invoice price does not equal the amount the dealer actually paid for the vehicle. While the dealer does not get a check from the manufacturer for the hold back amount the dealer does receive a credit (equaling the holdback) towards the dealer’s next car purchase. Not all product lines have dealer holdbacks and the percentage does very a little.
What is a factory incentive?
When the manufacturer has too many of a particular new car model sitting at the factory, port or dealership, they will offer incentives to the dealers to move them a little faster. There are a number of different programs and they change regularly. Not all new car models in a product line will have dealer incentives. Usually the more popular models will not have incentives or lower incentives in that they do not need the extra help to sell them.
What are extended warranties? (service contracts)
Weather or not you should buy an extended service contract depends on many factors. First and foremost, what is the factory warranty? Does it provide adequate coverage for the length of time you plan on owning the automobile? If you drive a lot or plan on keeping the vehicle for a long time, an extended service contract might be a good idea. In the case of a used car, extended warranties can be very valuable! Whenever possible it is best to get the extended service contract that is provided by the manufacture. There are many other companies that offer extended service contracts, however, the factory is not going anywhere and repairs would be covered at any dealership. With other warranty companies, you never know what might turn in to a hassle down the road. The price of an extended service contract varies widely depending on term, mileage and carrier. The factory extended service contracts tend to be a little more expensive than some of the after market companies, however you can negotiate the price for any of them.
What are dealer added options? (Aftermarket accessories)
One very popular after market item is undercoating, paint and fabric protector. Again, check out the factory warranty and make your decision. This product usually does not cost the dealer very much and allows for huge profit. If you decide to purchase this package, make sure you negotiate the best possible price. In some areas of the country the dealer or regional distributor will undercoat the new automobiles as soon as they arrive at the dealership or port and add a supplemental sticker to the window. The same holds true for some dealer-installed options like: alarms, upgraded stereos, roof racks, running boards, trailer hitches, and lift/lowering kits. All of these can be purchased through the dealer or from local businesses. If you are comfortable with what the dealer offers and the price they are asking, there is no reason not to buy through the dealer. Other dealer installed or aftermarket items include: Sun/moon roofs, mud guards, pin stripes, floor mats, tinted windows, custom wheels and more. Weather or not you should buy any of these items should depend on what they are charging and whether or not you want to finance them in to your loan. This is a good way to get the extra’s you want without coming up with the cash.