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Mar
2020
31

True Car Dealer Cost and Calculating Your Offer

Last Modified: February 04, 2020 by Jeff Ostroff  | Originally Published February 26, 2000

CarBuyingTips.com will show you how to figure out how much the dealer paid for the car. To help do this, we will make use of some great free sites. I have also created a free “Offer Spreadsheet” that will calculate a fair offer for both you and the dealership. Once you fill it out you’ll be able to use it during your negotiations.

1. How Much is Fair to Offer the Dealer?

In order to calculate your offer, the first thing you have to do is find out how much they paid for the car. Then you will be able to offer them a deal that gives them a fair profit.

Don’t just make up a number for the offer, make an educated offer based on the dealer’s actual cost. It will take some time and research so you must be patient.

new cars on lot - wide

At the dealership, one of the first things you should do is ask them to show you the factory invoice for the car. If they refuse your request, I will show you how you can get the information online.

2. Your Offer Should Be 3% – 5% Over Actual Cost

To be fair for both sides, you should make an offer of 3% – 5% over the actual dealer’s cost, not above the invoice price. Dealerships will gladly accept a 5% profit. In fact, many dealers survive on 3%. I have done extensive research with auto industry insiders and have verified this to be true.

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You will find that a lot of dealers will charge dealer prep fees and advertising fees to offset their expenses. Meeting sales goals will also bring income to the dealership in the form of incentives from the manufacturer and these incentives further offset their costs.

Their bread and butter is taking advantage of uninformed buyers. Don’t misunderstand me and think I’m saying that they shouldn’t make any profit, I’m just saying that it needs to be fair. They make additional money from trade-ins, credit insurance, finance, accessories, extended warranties, rust proofing, etc.

3. How Much Did the Dealer Really Pay for the Car?

Dealer Cost is Not the Factory Invoice Price!

The dealer’s actual net cost of the car is usually much less, made up of 3 parts:

Invoice Price – Factory Holdback – Factory To Dealer Incentives = Actual Cost

Magicians have nothing on car dealers when it comes to keeping secrets and how much they actually paid for the car is their most important secret. You’ll hear a lot about the “factory invoice” and the salesman will try to make you believe that it shows their true cost. Don’t fall for this pitch because it’s not correct. Knowing the true cost is your most powerful weapon when negotiating with the dealer.

4. CarBuyingTips.com Explains Factory Holdback

Dealers are charged a