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Buying a car is not like shopping for a pair of chinos at The Gap. You don’t simply walk up to the cash register and pay the price printed on the label. For starters, a car’s window sticker bears not only the manufacturer’s suggested retail price or MSRP, but also the destination charge, and the manufacturer’s suggested retail price for every accessory or installed option. To complicate things further, the dealer might tack on another sticker indicating the suggested retail price of dealer-installed options and dealer preparation charges. As a car buyer, you’ll need to know the minimum price from where you can start negotiating with the dealer. Familiarize yourself with important auto pricing terminology to boost your bargaining power. The following is a list of prices and charges that you may encounter at the dealership.
Base price – The price of the vehicle without options. This price covers the standard equipment and the manufacturer’s warranty.
MSRP – The manufacturer’s suggested retail price. Because the MSRP is only a suggested price, dealers may sell the car at a figure that is higher or lower than the MSRP. Similarly, car buyers can negotiate a retail price that is lower than the MSRP.
Monroney sticker price - The sticker on the car window that indicates the manufacturer’s suggested retail price (MSRP), the manufacturer’s suggested retail price for any accessories or options, and the manufacturer’s destination charge. Named after Oklahoma Representative A.S. “Mike Monroney,” author of the Automobile Information Disclosure Act, the Monroney sticker also includes information such as the vehicle’s make and model and its fuel economy.
Destination charge – The charge for delivering the vehicle from the factory or port of entry to the dealership. This fee is non-negotiable and is usually the same amount for all models within a brand.
Dealer sticker price – This fee includes the suggested retail price of any dealer-installed options, additional dealer profits or mark-ups, and the costs involved in preparing the vehicle for sale.
Market adjustment – The charge that dealers may add to the retail price of a vehicle that is in high demand in order to make extra profit. Car buyers can try to negotiate this fee, but the dealer is unlikely to budge if the vehicle is selling fast.
Rebate – A reduction on the car’s price given by the manufacturer directly to the buyer. Rebates represent a useful incentive, particularly for car buyers who cannot qualify for low-rate loans or do not have the money for a large down payment. Since the rebate comes from the manufacturer, do not include it in your price negotiations with the dealer. The same rebate will apply regardless of what you pay for the vehicle.
Dealer’s invoice price – The price printed on the invoice issued by the manufacturer to the dealer. This amount does not necessarily reflect the dealer’s true cost, since dealers may receive incentives or holdbacks from the manufacturer, which can give them additional profit margin.
Dealer holdback – A percentage of the manufacturer’s suggested retail price that is paid by the manufacturer to the dealer upon sale of the vehicle. Holdback payments allow dealers to make a profit even if the vehicle is sold at its invoice price. Dealer holdbacks differ in amount depending on the vehicle’s make and model and are based on certain dealer criteria, such as customer service index and operational costs. Holdback payments are usually non-negotiable.
Dealer incentives – Programs offered by manufacturers to dealers to increase the sales of slow-selling models. Dealer incentives are also offered on sales of vehicles that are going to be replaced by new models or vehicles that are scheduled for a phase-out. Dealers may either pass on the savings to the buyer or keep them as added profit. |
