- Buying & Selling New & Used Cars
My Car My Life: Dirty Little Secret
Secrets. We all love them – if we’re in the know. But being stuck on the outside? Nothing can be more frustrating…especially when you know there’s a secret and you will never be able to find out what it is. Wouldn’t you love to know what the real cost is for those Louboutins? Honestly, we all know there’s not $900 worth of material (or engineering) in each pair. What’s in a name? A helluva lot of mark-up.
When it comes to buying cars, there are a lot of secrets, too. MSRP? Invoice? Invoice plus incentives? Discounts? What’s the real price? Even the professionals in the business who are supposed to know these things have a difficult time pin-pointing the rock bottom, true price the dealer pays.
Why is it so difficult? Frankly, because that’s just the way they want it to be. That’s why it’s important to do your homework when buying a car. ALWAYS!!
The Dirty Little Secret is a Big Deal
Right now, MCML is going to make it worth it for you to do this bit of homework because we’re going to pull back the curtain on one of the sacred secrets of automobile sales and pricing: hold-back money.
What is this? This is a pre-determined sum of money the dealer receives on every vehicle sold from the manufacturer. It’s like a guaranteed secret profit margin. Whenever a dealer tells you he isn’t making a dime on the deal, what he really means is he’s not making an extra dime off of you. He’ll be okay, because at least he’s making the hold-back money.
First things first. Audi, BMW, Land Rover, Jaguar, Porsche and, surprisingly, Scion don’t give hold-back money to the dealers. So, if they’re on your list, your goal is to get as close to invoice as possible. (This is where truecar.com comes in real handy. See: “Still Gotta Do the Homework”)
All the others do. The amount is 2 to 3% of MSRP in most cases. In some, it’s 2-3% of invoice.
So, does this mean the vehicle price has actually been inflated 2 – 3%? No, not necessarily. It means the dealer will get a quarterly check from the manufacturer based on the vehicles sold and the hold-back policy. The money comes from somewhere in the price calculation meaning that, yes, ultimately it is in there, but it’s not like a line item you can cross off.
This is where the tricky part of this secret comes into play – it is sacred. Hold-back money is precious to a dealer, so it’s not like you can look him in the eye and take an extra 2% off of invoice knowing he’s getting 1%. Not gonna happen.
Gaining a little negotiation muscle
The power the knowledge of this little secret gives you is additional nerve at negotiation time. You can stare him down to invoice before blinking. And though he’ll cry, you can give him a little smile and a wink know full well he’s still making something. Who’s really crying is the sales person because they are typically paid out of the gross profit of the deal.
What does that mean? The more you pay, the more he/she gets. Any money over invoice is gravy. Money over MSRP is a winning lottery ticket!!
But you’re never going to be that winning ticket. No, no. You’re an independent woman and a smart shopper. You do your homework. And that homework pays off, because the money you save is more than enough to cover those rascally little Bianca back-zip pumps you’ve been itching to get. There are, after all, some secrets a girl just has to respect….
For more information on hold-back money and a list of the hold-back policies of the auto manufacturers, visit: http://www.edmunds.com/advice/incentives/holdback/index.html