The truth about Invoice pricing!
The information we are about to give you has never been discussed or written about by someone in the car business. This information is not usually shared with customers, because this is how auto dealerships make a profit on selling new vehicles.
"How can a dealer make a profit if they sell their vehicles at their invoice cost?"
Recently, we have seen more focus placed on what is the auto dealer's "True Invoice" cost is on a new vehicle. Customers feel a need to know this information in order to determine if they are getting a "good deal". Most dealerships are reluctant to share this information because they feel it will affect their profit margins. Without a fair profit it is hard for a dealer to exist and provide future services to their customers. Our goal is to create a happy middle ground where the customer is happy and the dealer is happy.
Our low overhead and expenses at Yellowstone Country allows us to make a fair profit while providing our customer with honest dealings and the best price in the market price without having to go through a lot of hassle. We know it has to be a "Win-Win" deal for both parties to be happy.
There seems to be a big trend where some dealers are abusing the word invoice by using it in their advertising in many different ways like the following: $99 over invoice or X under invoice or just Invoice cost. All this to make the consumer feel like they are getting a special deal. When you look at the real facts a lot of them are using the invoice word to entice and trick customers.
(at the end of this article is a tab to click that will explain the most abused invoice scams and tricks that bad dealers are using)
For years we have heard customers ask questions about what the invoice price was for a particular vehicle. When we showed them the invoice, there was this look of confusion. Then there was this look of disbelief on why ? we would show them what we actually paid for the vehicle.
So at Yellowstone Country Motors we decided it was best to tell you the whole story or as they say the rest of the story. Over the years we got frustrated watching as customers were being misled by inaccurate websites.
Understanding "True Invoice" Cost
Every car on a new car lot has to be purchased from the manufacturer (Chrysler, Dodge, Jeep, Ram, etc.). Dealers will typically finance the purchase of these vehicles using "Floor Plan" financing. Simply stated, Floor Plan financing is a loan at a specific interest charged to the dealership for as long as the vehicle remains in the dealer's inventory. In addition to the interest cost, the dealer must have insurance for every vehicle on his lot, no different than a consumer getting a car loan and having insurance on it to cover if it's in an accident.
Prior to the vehicle being delivered to the dealership, the manufacturer issues an invoice to the dealership for the cost of the vehicle. The manufacturer's "True Invoice" shows the vehicle's base cost, the cost of selected options, the destination charge for delivery of the vehicle to the dealership, advertising, and holdback.
All of the previously listed costs plus the Manufacturer's Suggested Retail Price (MSRP) for the vehicle are contained on the manufacturer's invoice to the dealer which is the "True Invoice" cost for the vehicle.
"Can I Get a Copy of the True Invoice?"
Other dealers may be reluctant to give you a copy of their Invoice. But at Yellowstone Country Motors, just ask your sales advisor for a copy of our "True Invoice" for the vehicle you are interested in buying! We are more than happy to not only provide the invoice but also explain it to your satisfaction, answer your questions and help you get the best deal we can offer. Every deal we offer a customer starts with a copy of the "True Invoice".
"What is 'Holdback'?"
The True Invoice includes a "Holdback"charged by the manufacturer to the dealer. Historically, holdbacks were developed by auto manufacturers to entice dealers to increase their inventory so they could sell more cars to the dealer while providing the customer a broader selection of vehicles to choose from.
Manufacturers assumed that it should not take more than ninety (90) days or three (3) months for a dealer to sell a new vehicle. During that time, dealers would incur interest and insurance costs to have the vehicle on their lot. As a result, dealers were reluctant to order additional inventory because their cost would increase and they would have to assume the risk of not being able to sell the additional inventory.
In order to entice dealerships to carry more inventory, the manufacturer developed the "Holdback" program to offset the dealer's interest and insurance cost for three (3) months.
"How Does the Holdback Program Work?"
The manufacturer's holdback covers interest and insurance costs for the vehicle during the first three (3) months it sits on the dealer's lot before it is sold. If the vehicle is sold on the 90th day that it's in inventory, holdback becomes a true cost to the dealer because it represents the interest and insurance cost incurred during the 90 days the vehicle was in inventory. The dealer actually has to pay these costs. For every day after the ninetieth (90th) day, the dealer incurs additional costs that are no longer covered by the holdback. This is because the dealer has to continue to pay interest and insurance costs for however long the vehicle remains in their inventory. The longer a dealer has a vehicle in its inventory the more they will lose if they sell it at invoice.
If, on the other hand, the vehicle was sold thirty (30) days after it was placed into inventory, the dealer does not have to pay interest and insurance costs for the next sixty (60) days so he earns a profit on the sale of the vehicle equal to sixty (60) days' worth of interest and insurance costs.
Based on actual experience, some vehicles will sell in less than ninety (90) days while other will sell in more than ninety (90) days so the dealer may end up with a net profit on new cars sold that month or a loss. In addition, these amounts can vary greatly during any given month. This is an additional risk a dealership assumes when selling vehicles at True Invoice.
Yellowstone Country's View of Holdback
It seems that certain "wannabe" consumer groups and websites enjoy throwing dealers under the bus to further their own gain or agenda. They give everyday consumers misinformation and attempt to encourage consumers to question dealers about this mystical money called "holdback". They claim it is a kick back and smacks of some illegality.
In reality, holdback is a reimbursement and an incentive for dealers to sell cars fast.
Remember, if Yellowstone Country sells a vehicle before ninety (90) days at "True Invoice", the only profit made is the Holdback minus any interest and insurance costs incurred for each day the vehicle remained in inventory before the sale. So Yellowstone Country has an incentive to sell the vehicle long before the ninety first (91st) day or additional costs will be incurred -- which are not reimbursed by the manufacturer's holdback! Money is lost on that vehicle!
As you can see, selling new vehicles at True Invoice requires the dealer to assume a certain amount of risk. This risk insures the buyer that our maximum profit on the sale is limited to the value of the holdback -- no additional markups or hidden costs added. In most cases, Yellowstone Country's profit will be less than the total holdback because the vehicle will undoubtedly spend some time on our lot.
Yellowstone Country wants to sell new vehicles in the shortest possible time to generate a better profit. This directly benefits the consumer looking for the best possible deal at "True Invoice". A Win-Win deal for both the customer and Yellowstone Country!
Unfortunately there are some bad dealers who are taking advantage of unsuspecting customers who are being confused between what is the real Invoice and what is "True Invoice."
Alert!! For helpful hints on how to spot a dealer who is using invoice tricks and scams read Helpful hint #10 in our consumer help guide or (click here)
We hope this information has been helpful and if you have any other questions please contact us at 406-222-8600 .