Auto Pricing Guide

Understanding how auto pricing really works is very important when you buy a car. Not knowing how the final price at the dealership is formed may prevent you from negotiating a better price and thus getting the best deal possible.

This article will give you more information on the different factors that are involved when the price of an automobile is being set.

Types of Auto Prices

• Dealer Invoice Price

  Every dealer pays manufacturers the same amount of money for the same vehicle. This is because dealers are not ordinary car buyers; they are businesses that buy wholesale. The wholesale price they pay the manufacturer is called "dealer invoice price".

• Manufacturer's Suggested Retail Price (MSRP)

  Auto manufacturers have a recommended retail price for each of their new car models and their options. This price is called Manufacturer's Suggested Retail Price (MSRP), or also known as the "sticker price".

  Have in mind that the MSRP is just recommended; dealers are not required to sell at this price. They may choose to sell their cars for more or less than the sticker price.

• Selling Price

  This is the actual price ("cash price") at which customers buy their automobiles from the dealer. It is usually somewhere between the dealer invoice price and the sticker price.

Factors Influencing the Auto Selling Price

Generally, the difference between the invoice price and the MSRP price is what a dealer can profit when selling an automobile. However, the dealer's potential profit margin depends on many other factors beside how these two prices are set.

One of these factors is dealer costs.

Dealers usually have to cover various expenses, such as TV and newspaper advertising fees, rent, taxes, interest on auto loans (they take loans too in order to buy cars from the manufacturer), employee salaries, etc.

Another factor that greatly influences auto pricing is manufacturers' assistance to dealers.

Manufacturers offer dealers various bonuses and rebates which reduce dealer costs and increase the potential profit. Such type of bonuses is the holdbacks.

Holdbacks amount to a small percentage of the car's sticker price or invoice price (usually 1-2%) and are a type of rebate that is given to the dealer when a car is sold. The faster the automobile is sold, the more profit the dealer will make on the holdback.

Thus, dealers may choose to pass such rebates and bonuses along to their customers and sell the automobiles at a lower price (sometimes even below the invoice price).

The auto loan calculators and the information available on this site are intended to serve only as general guidance regarding auto loans. Since they do not take into account your individual circumstances, we cannot and do no guarantee their accuracy or suitability to a specific purpose. We highly recommend you to consider the appropriateness of any information to your objectives before acting on it, and encourage you to consult a qualified professional regarding you particular personal situation.

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