What Are Car Invoice Prices and How to Find Them

What Are Car Invoice Prices and How to Find Them

Purchasing a new vehicle can be thrilling, for sure. But it can also be overwhelming, perplexing, intimidating and, for some of us, downright nerve-racking.

If you nodded along to any or all of that last string of emotions, relax. We're here to help.

When it comes to negotiating the price of a new car, truck or SUV at your traditional car dealership, one thing is for certain: Knowing a few catch words and phrases that most sales staff members likes to throw around as if they were plain English – terms such as invoice price, MSRP and fair market value, just to name a few – can be priceless.

But before you read on, know this: 

If you’re planning on purchasing a car from a dealership, be it new or used, the terms we’re about to explain are important to know and understand. Regardless, it’s also equally important to keep in mind the fact that we’re well into the 21st century, and that you know that not all car vendors operate as they all once did just a few years ago.

In fact, these days, savvy 21st century car buyers know that savvy 21st century car sellers – such as is the case with Shift – are dedicated to being honest, plainspoken and nonsense. 

In short, all this is to say that companies like Shift are well on to shady car-selling techniques of yesteryear and that you, dear buyer, have options.

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What is the invoice price of a car?

Simply put, the invoice price of a car is the monetary amount that the dealer claims to have paid the manufacturer for the vehicle. And it usually serves as an ideal starting point for hammering out a deal on that ride you've got your eyes on.

The invoice price is sometimes also referred to as the dealer cost and is supposedly the amount that any given automaker charges a dealer for its vehicle. In most cases, what's known as destination or freight charges – that is, the automaker's cost of physically delivering the vehicle to the dealership lot –  is also bundled into this figure.

But did you know a vehicle's invoice price is actually often more than what the dealer really winds up shelling out for that new car that you're looking to buy?

Yes, it's true.

This is because car dealerships often score major discounts from automakers by way of rebates, bonuses, perks, incentives or what's known as “holdbacks,” which is essentially a refund the dealership receives from the automaker after concreting a sale. Dealer holdbacks can wind up being anywhere between 2 and 3 percent of either the invoice price or the manufacturer’s suggested retail price, depending on the car company.

With the average price of a new car these days sizing up at just shy of $41,000, that holdback would work out to be between $820 and $1,230.

What is the MSRP of a car?

A vehicle's MSRP – or "manufacturer's suggested retail price” – is the amount or "sticker price" that the automaker provides to the dealer as the recommended cost to offer the customer. This figure doesn't include any of the vehicle's additional options or upgrades, however. Also, the dealership essentially has carte blanche to sell the vehicle for an even steeper amount than the MSRP.

Remember, traditional car dealerships will often attempt to confuse buyers by keeping them in the dark about concepts like invoice prices, MSRP and fair market value. But Shift bypasses this altogether and offers fair, no-haggle prices that are driven by powerful machine learning algorithms and tons of data to give buyers the best price available without forcing them to haggle.

What does ‘fair market value’ mean?

This is why it's crucial for a buyer to know the fair market value of any particular vehicle. The fair market value is what the car, truck or SUV is actually worth. Different factors that are used to determine this amount include the vehicle's make, its model, its manufacturing year, your specific location and what other buyers have on average paid for the same style of auto.

Publications such as Edmunds and Kelley Blue Book offer consumers reliable, trustworth estimates of a vehicle's fair market value. They also usually list this figure along with the MSRP and the invoice price together, which is extremely helpful to see all three figures side by side. That said, be sure to have either or both Edmunds and Kelley Blue Book handy and ready to consult if and when you start to talk prices at the dealership.

In most cases, when comparing the invoice price, fair market value and the MSRP, the invoice price is usually the lowest, the MSRP is the highest and the fair market value is somewhere in the middle.

These days, it's more commonplace – and thankfully so – for dealerships to be more transparent when it comes to revealing the invoice price of the vehicle. And some car sellers, like Shift, forgo dated concepts like invoice prices altogether. But if you do have to wind up asking to know the invoice price, it's best to do so politely rather than insisting upon it as if it were your right.

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How do I get a dealer to offer the car’s invoice price?

So, having said all that, what are some strategic ways for you to purchase your new vehicle at its invoice price?

The most common – and often most uncomfortable – approach is to play hardball and negotiate like a Wall Street broker. As awkward and stressful as it can be, it often pays off. Certain dealerships will take into consideration the fact that their profit margin is actually 10-20 percent on average, which just so happens to be the difference between the vehicle's invoice price and its MSRP. But the buyer has to be the one to initiate this discussion. If you do decide to step up to the plate and negotiate, think about opting for the invoice price as a starting point for bargaining. If not, at least keep it in the forefront of your mind.

Another method of attempting to get the vehicle's final selling price as close to its invoice price as possible is to opt for a make and model that's simply not in as much demand as others. It's simple economics. The less popular or more common a vehicle, the more likely the dealership will be willing to part ways with it for a lower amount in the end. Well sought-after models like BMW X3s and Ford Mustangs are less likely to go for their invoice prices than, let's say, a Toyota Camry or a Chevrolet Malibu.

Purchasing a new vehicle often winds up being one of the most landmark deals a person makes in her or his lifetime, ranking right up there with buying a home or walking down the aisle. That's why it's crucial for you to know how to read between the lines as best and as informed as possible regarding how the dealership is pricing the vehicle from the moment the salesperson first walks up to you and shakes your hand. Doing so will make it more likely for you to be satisfied with the final price of the vehicle when you sign that contract.

And, if in the end the dealership refuses to bend on a figure that is simply just out of your price range, don't forget the priceless power that you, dear consumer, have by simply smiling, saying "thank you" and walking away. As the saying goes, there are a million fish in the sea. The same goes for cars.

It's a fact that dealers are vying for your business, as they are with everyone else's business, too. Nevertheless, it never hurts to shop around. Do your homework, take your time and don't rush into any deal before you've had a chance to analyze prices and incentives from other local dealerships. Thankfully all dealerships these days have every member of their entire stock available for viewing online. That means you can window shop with ease … and even in your PJs, if you want.

Given that Shift's showroom is entirely virtual, every member of their vast inventory is literally a click of the mouse away. Shift also offers best-in-class service contracts at a fair-price without the typical sales pressure that happens at most dealerships. That means you get the great price and value of a used car with the bumper-to-bumper protection of a new car without having to barter.

Once upon a time, haggling was a customary part of the car-buying process. And at most dealerships, it still is. That’s why it’s essential for you to know the difference between old-school jargon like invoice price, MSRP, dealer cost and such.

But thankfully, that’s not necessarily the custom everywhere anymore. Remember, times have changed and companies like Shift want to make buying a car as honest and fair of an experience as possible. 

In short, Shift makes buying a new used car easy, plain and simple. Just as it should be.

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No-Contact Test Drives
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Shop Used Ford Mustang

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Author
Shift Editorial Team