| When buying a new car, many people often try | | | | Now, where can you find all this information? You |
| determine what they should pay? Nobody wants | | | | can find it on some good auto sites like Edmunds |
| to be taken for ride. Of course, the dealer is not | | | | and Yahoo. I also list couple others on my |
| in the charity business and wants to make a | | | | website. If you do your research, you usually can |
| profit. So, what should you pay? | | | | determine the dealer's cost. |
| One rule is that you should offer 5% above | | | | Now the 5% above dealer cost is generally a |
| dealer cost. Now, the first thing you need to | | | | good guide, but there is an important caveat. That |
| know is that the dealer's cost is not the invoice | | | | is the auto market is still subject to the laws of |
| price. You calculate the dealer's cost by taking the | | | | supply and demand. For example, a few years |
| invoice price and subtracting factory incentives, | | | | ago, in order to get a Prius in Los Angeles, you |
| rebates, and dealer holdback. Factory incentives | | | | had to place your name on a waiting list. Now, if |
| are paid from mfg to the dealer in order to | | | | you walked in Toyota dealership and attempted |
| promote sales and reduce inventory. Rebates are | | | | to get the car for 5% above dealer cost, they |
| cash incentives given directly to the customer and | | | | would have laughed you out of the dealership. So, |
| are generally credited towards the down | | | | how do you determine the effects of supply and |
| payment. Now, holdback is a little bit tricky. When | | | | demand? Get car quotes from internet sites. |
| the dealership buys the car from the | | | | Internet quotes generally give you volume pricing |
| manufacturer, it pays certain percentage above | | | | that is competitive and close to invoice. You can |
| the MSRP or invoice price to dealer. Later, at a | | | | sometimes still go slightly lower than that, but if |
| predetermined time, the manufacturer reimburses | | | | you see a huge difference between your quoted |
| the dealer for the excessive charge. There are | | | | price and your calculated price of dealer cost plus |
| few reasons for this, but suffice to say, it | | | | the 5%, then a car is most likely in high demand. |
| artificially inflates the price of the car. That is the | | | | If this is the case then you will most likely have |
| reason why, even if the dealer sales the car at | | | | to pay more. The car quotes should be your |
| invoice price, it can make in some instances a | | | | guide on how much you should pay. |
| $1500 profit. | | | | |