Quick Tips About Invoice Price and Dealer Markup
- Invoice price is the amount the dealer is billed by the manufacturer for a vehicle.
- Dealers may charge for add-ons, extras, and various fees, but these markups are often negotiable.
- Find common ground when negotiating from the sticker price because the dealership wants to sell you that car as much as or more than you want to buy it.
One of the most complicated parts of buying a new car comes with sorting through the differences between a dealer’s invoice price, the manufacturer’s suggested retail price (MSRP), and any markups tacked on at the bottom line.
While it might seem like extra work, having at least a ballpark idea of those numbers can help you negotiate and get the best price possible. Due to a number of factors, it’s often tough to tell how much a dealer paid for a vehicle (invoice price), but this overview will help you get a feel for how one number can affect another, and how you can use that information during your next car purchase.
What is Dealer Invoice Pricing?
Believe it or not, new car dealers have to purchase their inventory from the manufacturer. The amount paid is called the invoice price, or dealer cost, and it can vary depending on several factors, including automaker incentives, the dealer’s OEM relationship, and the volume of vehicles sold at a location.
You don’t always see this number because most dealers don’t want to disclose the amount of wiggle room they have with new-car pricing. That said, a good rule of thumb is to estimate the invoice price between 3% and 8% below the MSRP. The actual spread varies widely by brand, model, and market conditions.
What is the Manufacturer’s Suggested Retail Price (MSRP)?
The manufacturer’s suggested retail price (MSRP) is the price the automaker recommends dealers charge. While dealers have discretion with numbers, the MSRP is generally the starting point for new-car prices. It is also a common starting point for dealer advertisements, as many offer a percentage off MSRP and other incentives to attract buyers.
Car Pricing Explained
Understanding MSRP, Invoice Price, and Dealer Markup
MSRP
The official price recommended by the car manufacturer. This is the “sticker price” displayed on the window. It includes the base vehicle price plus optional features and destination charges. Dealer-installed accessories, fees, and taxes are typically not included. MSRP is typically the starting point for negotiations and is usually higher than the dealer’s actual cost.
Invoice Price
The amount the dealer actually paid the manufacturer for the vehicle. This is typically a variable amount (often a few percent) lower than MSRP and is what dealers use to determine their profit margins. Consumers who negotiate well often get close to this price. It may include manufacturer-to-dealer programs (such as volume discount) that can reduce the dealer’s effective cost.
Markup
The difference between what the dealer paid (invoice price) and what they sell the car for (MSRP or negotiated price). This covers dealership overhead, employee salaries, floor plan interest, and profit. Markup percentages vary range from 5-15% depending on demand, market conditions, and vehicle availability. High-demand vehicles may sell closer to MSRP or above it, sometimes with added “market adjustments.”
Sample Pricing
Manufacturer
Sets MSRP and Invoice Price
Dealer
Buys at Invoice, Sells at MSRP or Less
Consumer
Negotiates Final Price
Manufacturer’s Suggested Retail Price (MSRP)
Invoice Price (Dealer’s Cost)
Dealer Markup Breakdown
Smart Negotiation (Invoice + Small Markup)
How to Negotiate a New Car Purchase Price
Knowledge is one of the most powerful tools you can bring to the negotiating table. Here are some of the things you need to know before heading to the dealership.
- Research Vehicle Pricing: Sources such as Kelley Blue Book’s new-car pricing tool are a great way to get a feel for where your dealer’s numbers fall in your region. It’s also a good idea to research your chosen model’s invoice pricing, but remember that it’s often tough to nail down exact numbers.
- Start Negotiations Remotely: While many dealers ask that you come in person to view and discuss pricing, it’s better to gather as much information as possible before setting foot in the showroom. Ask for the “out-the-door” price, which includes fees, taxes, and any markups. Starting with a phone or email conversation also removes much of the pressure associated with shopping in person.
- Discuss Trade-In and Purchase Prices Separately: Some dealers prefer to wrap the trade-in price into the overall purchase, but it’s best to negotiate separately. Doing so will allow you to negotiate the best deal for your trade-in without having it hidden within the overall purchase price numbers.
- Be Patient: Nothing puts dealers on the defensive faster than a rude customer. It’s essential to stick to your budget and try to get the best pricing, but remember to remain calm and be polite throughout the process.
Read more about car buying and affordability on Autotrader’s Affordability Hub.
Editor’s Note: We have updated this article since its initial publication. Doug Demuro contributed to the report.
