How to determine dealer cost on a new car or truck.

By knowing how much profit dealers are making, you are in a position to determine how good a deal your are receiving. If you can land a price quote within $1000 of dealer cost you are getting a great deal. This can be achieved by using one of the pricing services mentioned in this guide without negotiating. In many cases you will see a price well below dealer invoice because of large rebates and hidden incentives called dealer holdback.

Q: What is dealer holdback?

A: Dealer holdback is a hidden profit manufacturers apply to the invoice prices and give to the dealers. Dealers are allowed to use this profit anyway they see fit. You can use it as leverage for a discount.

Steps to determine dealer Cost

Step 1: get the dealer invoice price for a car when you fill in an online price request form from the sources mentioned in this guide. (Autobytel, Stoneage, InvoiceDealers, and CarsDirect. ) Make sure you keep note of the MSRP, Dealer Invoice price, and any rebates or manufacturer discounts.

Step 2: Calculate the hidden profit or "hold Back" from the chart on the right. For example, Honda has a hidden hold back of 3% of the Base MSRP.

If the Base MSRP for a car is $20,000 for example, you then calculate 3% of $20,000. (3% X $20,000 = $600). $600 is the hold back. (MSRP depends on the model you choose - this is just a made up example)

Step 3: Now Calculate the dealer cost by subtracting the $600 hold back above from the entire invoice price you received from one of the pricing services. (Autobytel, Stoneage, InvoiceDealers, and CarsDirect. ) You will receive the invoice price for the car of your choice by filling in the price request form from one of the sources above.

In this example lets assume the total invoice price is $18,000. You then calculate the cost as follows: $18,000 - $600 = $17,400 dealer cost.

Your last step is to subtract any manufacture rebates for the dealer cost for the model your are interested in. If Honda is giving a $1500 rebate or additional discount you would subtract this from the $17,400 above.

$17,400 dealer cost - $1,500 rebate = $15,900 true dealer cost.

Note: You will get rebate and discount information when you fill in a quote form from one of the buying services above.

If you buy the car for $17,100 the dealer is making $1200 profit and you purchased the car for $900 below dealer invoice. (You both win!)

(When calculating holdback, use the formula at the right for the make of car you are interested in)

NOTE: Although figures change all the time, this formula provides a good estimate of what dealers can sell cars for without losing money! If you are with in $1000 to $1500 dollars of the dealer cost, the dealer is making money and you have a good deal. This is often much lower than the price you would get by negotiating with a salesperson. (Usually over $1000 above dealer invoice!)

Calculations:

• If a % of "Total" MSRP or Invoice make sure you add all the manufacturers options to the price when calculating holdback
• If a % of "Base" MSRP or Invoice, calculate hold back on the Base price before you add the options