If you’ve been seriously thinking about buying a car, you may have heard a salesperson tell you that he or she can sell you a vehicle for “under invoice,” which means less than the price the dealer pays to buy the car from the manufacturer.
But how is that possible? Is this just a gimmick? And can a dealer really sell you a car for below invoice? We have the answer.
Although it may seem counterintuitive, it’s actually possible for a dealership to sell a car for “below invoice.” There are three major reasons why this can happen: A special promotion, holdback, or financing deal.
An automaker might be running a special promotion for its dealers to sell a certain car in a certain month. For instance, if Honda is trying to get dealers to clear out last year’s Accord models in preparation for a new model year, it may offer dealers $1,000 per car for each Accord they sell.
This way, a dealer wouldn’t mind selling the car a few hundred dollars below invoice. If they take a $300 loss on the car compared to its invoice price but receive $1,000 from the manufacturer for selling the car, their net profit is still $700.
The other reason why a dealer will sometimes sell a car below invoice is something called “holdback.” Holdback is a common term in the automotive industry, and it describes a manufacturer rewarding a dealer for selling a car.
This is unlike the special reward described above, and it usually happens on every single car in a dealer’s inventory. Since holdback can be a few hundred to more than a thousand dollars, selling a car below invoice can still return a net profit for the dealer once they receive the manufacturer holdback.
Finally, it’s important to understand that dealers often earn a large percentage of their income on financing. If a dealer sells a car for a few hundred dollars below invoice but then earns a few thousand dollars in interest over the loan term, this isn’t exactly a loss.
That’s especially true if the buyer chooses other high-profit dealer extras, such as an extended warranty or other products.
Although a dealer can sell a car below invoice, it’s unlikely. If you’re buying a car from a dealer, you’ll probably pay over the invoice price. Dealers try to sell under invoice only as a matter of last resort, such as at the end of a model year or if a launch for a brand-new model is only a few weeks away.
Selling below invoice is especially unlikely right now. As you may have heard, the current market for cars is unusual.
For a host of reasons, many cars are in short supply. Here’s why:
A slowdown in manufacturing during the COVID-19 pandemic, an increase in demand now that the economy is starting to recover, and a worldwide shortage of microchips used in building cars have combined to keep new cars in short supply. That is pushing prices up, and causing automakers to throttle back on incentives.
“An increase in demand, sales, and vehicle prices all have contributed to continually rising transaction prices,” says Kayla Reynolds, industry intelligence analyst at Cox Automotive (parent company of Kelley Blue Book).
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Invoice Doesn’t Matter
The truth, however, is that it shouldn’t matter whether you’re paying below invoice for a new car. You should always make sure any car fits into your budget, and you should try to negotiate the best deal possible — regardless of whether it’s below invoice or not.
If you get a $25,000 car for $22,000, you should celebrate your good negotiating skills and your $3,000 discount — and not wonder about whether or not you were able to buy the car for below the dealer’s invoice price.
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Editor’s Note: This article has been updated for accuracy since it was originally published. Sean Tucker contributed to this report.