When it comes to purchasing a car, many people are often overwhelmed by the sheer amount of information and negotiation tactics that they are bombarded with at dealerships. One term that is commonly thrown around is “invoice pricing,” which refers to the price that dealerships supposedly pay for the cars on their lots. However, as it turns out, this is not actually the case.
In reality, dealerships are able to purchase cars for 3 to 5 percent below the invoice price, thanks to something called “hold backs.” This means that the true cost of the car is actually lower than what the dealership leads you to believe. On top of that, dealerships also have access to a variety of incentives from both banks and manufacturers, which can further lower the cost of each vehicle.
In fact, manufacturers will often offer dealerships large bonuses at the end of each month if they hit certain sales goals. For example, if a BMW dealership sells 300 cars in a single month, they could receive a bonus of up to $200,000. This would then lower the cost of each car on the lot by an additional $700.
All of this goes to show that there are multiple ways that dealerships can lower the cost per vehicle on their lots, and that the sticker price that you see on the car is not necessarily reflective of the true cost. However, by understanding how these incentives and bonuses work, you can better prepare yourself for negotiations with dealerships and avoid getting taken advantage of.
At LeaseMax, we structure our deal sheets to ensure that there is a reasonable profit left in the deal for the dealership, while still providing a fair deal for our clients. This means that when you walk into a dealership armed with the knowledge of how these incentives work, you can avoid all of the hassle of back-and-forth negotiations and get a great deal on your next car.