In a NutshellBuying a new car is exciting, but it can also be a confusing process for some. Understanding the terms used by car dealerships — like invoice price, MSRP and fair market value — can come in handy when it’s time to negotiate the price of your new car. A car’s invoice price (what the dealer lists as what it paid the manufacturer for the car) can be a starting point in price negotiations.
Knowledge is power when it comes to understanding new-car pricing, and a little preparation can go a long way in helping you get a price you’re happy with.
Buying a new car isn’t cheap — according to analysts at Kelley Blue Book, the average new-vehicle price in the U.S. was $38,635 in August 2020. So for some, the process of purchasing a vehicle can be costly.
Let’s take a look at what a car invoice price is and why it’s important, and scenarios where you might be able to get a car at — or even below — this price.
- How is a car invoice price different from MSRP?
- How can you find out a car’s invoice price?
- Can you buy a car at its invoice price?
How is a car invoice price different from MSRP?
A car’s invoice price is one of a few prices you may hear at the dealership or see during your research. Here’s how they all differ.
The invoice price, or dealer cost, is what a car manufacturer charges the dealer for the vehicle. Freight charges, which are also called destination charges, are usually included in this price. The invoice price is often higher than what the dealer ends up paying for the car.
That’s because dealers often receive manufacturer rebates, allowances, discounts or incentives for selling a car. They can also receive a holdback — a refund the dealer gets after making a sale. Dealer holdbacks vary by automaker, but are generally 2% to 3% of the invoice price or manufacturer’s suggested retail price.
Manufacturer’s suggested retail price
The manufacturer’s suggested retail price, or MSRP, which is commonly called the car’s sticker price, is the auto manufacturer’s suggested price for the car’s make and model. It doesn’t include optional features, which can raise the car’s cost above the MSRP. Dealers can choose to sell the car at a price that’s higher or lower than the MSRP.
Fair market value
The fair market value is an estimate of what the car is worth at an auto lot or in a normal private sale. Kelley Blue Book and Edmunds offer tools that allow you to see the fair market value of a car based on factors including make, model, your location and what others in your market have paid for the same vehicle.
How can you find out a car’s invoice price?
Sites like Kelley Blue Book and Edmunds can conveniently show you the car’s estimated invoice price, MSRP and fair market value in one place. Generally, a car’s invoice price will be the lower price, the MSRP will be higher, and the fair market value typically falls somewhere in between.
Can you buy a car at its invoice price?
You might be able to buy a car at or near its invoice price if you …
Negotiate the price
Some dealers may be willing to bargain with you on a price of a vehicle. Their profit margin is generally 10% to 20% — often the difference between the car’s invoice price and its MSRP. You might consider starting your negotiations with the invoice price in mind.
Choose a less-popular car
You might be able to buy a new car at the invoice price, but that may be unlikely if you want an in-demand model. If the car isn’t popular and it’s in stock, you may be able to get a good deal. Dealers generally want to keep their current inventory moving — partly because they can keep more of their holdback if they sell the car sooner.
Dealers are competing for your business, so it may be worth shopping around. Before heading out for a test drive, do some research, and compare dealer-specific incentives and pricing to help identify the best deals in your area.
Buying a new car may be one of the biggest purchases you may make in your lifetime. Before signing on the dotted line at the dealership, make sure you fully understand how the dealer is pricing the car and that you’re happy with the final, out-the-door price negotiated.
If the dealer is holding firm at a price that’s beyond your budget, remember that you can always shop around to help find a better deal elsewhere.