New car dealer cost is something that most people only have a vague understanding of. When asked, most people have no idea how dealers determine the price of a new vehicle and what price they should expect to pay for it. In order to understand what you should pay, you first need to understand how dealers come up with the price in the window of your dream car. Often, two car buyers from separate states or cities may find that they pay vastly different prices for their new car, even when they are exactly the same. So how does the dealer determine what price the car will sell for?
Automobile manufacturers determine the MSRP (manufacturer’s suggested retail price) of a car before it even leaves the factory. Different models of the same car with alternate features will increase or decrease the MSRP of the vehicle. This price is also known as the sticker price of the car, and is what you see in the window when you go for a test drive.
Dealerships are independent businesses, and they do not pay MSRP for your car. Instead, they pay a dealer invoice price. All dealers pay the same invoice price for identical cars, but not all will sell the car for the MSRP. The difference between what the dealer sells the car for and what they buy it for is their profit margin, or how much they make on the sale of the car.
This profit margin is not the same on all vehicles. Some vehicles, particularly luxury cars, may have high profit margins, as much as 10% to 15%, where more inexpensive vehicles may only have a profit margin of as little as 3%. The average profit margin for most vehicles is between 6% and 9%.
Vehicles with large profit margins make it easier for the buyer to negotiate down the price and get a better deal, whereas those with small profit margins have less room to haggle. Additionally, dealers pay interest on the loans that they use to buy new cars from the manufacturer. As a result, the longer the car is on the dealer’s lot the less money they will make on the sale of the car. This can be both a positive factor, as the dealer will want to get rid of the cars, and also a negative one, as they have less room to negotiate on price.
When buying a new car it is best to find the suggested MSRP and work on negotiating down from there. You can expect to save some money if you know what you are doing and are willing to negotiate on your new car.