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Invoice pricing explained

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From Hybridbear

 

Dealer invoice price is publicly available on sites like kbb.com or Edmunds. The dealer should also have no problem telling you this number. The dealer invoice printout will show you AZXD plan pricing, MSRP & dealer invoice.

 

The dealer makes a profit even when selling you a car at dealer invoice. The dealer does not pay Ford the dealer invoice price for a car. They pay less. When dealers sell a car at invoice price they're still making money because every car has a "holdback" which on the FFH is somewhere between $500 & $1000. That is their margin even when selling at invoice price. Higher volume dealers are more likely to sell cars at invoice price because they also get volume rebates from Ford.

 

These numbers are purely for the purpose of illustration and are not necessarily accurate. My dealer explained this process to me because I asked about how they make profit selling at invoice (but I didn't ask this until after we had signed and paid that price for our car). He didn't tell me how much they get in volume rebates, he just said that they get volume rebates every month at their dealer. Say for example that Ford sets a target of 100 Fusions per month per dealer to get a volume rebate of $300 per car. If that dealer sells 110 Fusions in one month they would get a rebate from Ford of $33,000 or 110 x 300. That increases their margin on every Fusion by $300. This is why shopping at the end of the month is good for buying cars off the lot. The dealer might know on the 29th of the month that they need to sell 15 more Fusions to get their volume rebate so they'll sell those cars cheaper knowing that the volume rebate will make up for it.

 

Buying cars off the lot is more expensive because the dealer typically doesn't pay cash up front to Ford when taking delivery for their lot. They have a finance company who pays Ford and they pay a fee for every month the car goes unsold, and then they pay the full cost of the car once they have received the money from the buyer. This is another reason why they sell cheaper at the end of the month. Because every car still on their lot on the 1st of the next month costs them another fee to the finance company.

 

When you order a car the dealer doesn't go through the finance company but instead pays Ford cash up front which is why you can order out at a lower price.

 

Edited by hybridbear

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Thanks for posting this - it's a great topic!

 

Ford has a 3% holdback rate, based on MSRP minus destination. I just priced a 2014 FFHyTi on ford.com for $36,675. Subtract $795 destination = $35,880, x .03 holdback = $1,076. So, if you manage to negotiate invoice pricing on your sale (good luck, and please share the dealer's name if you do), they still get 'at least' $1,076. There are numerous other incentives, too, such as Ford-to-dealer cash, volume incentives, and related. Also know that invoice prices can also be inflated. Holdback is typically released to the dealer quarterly.

 

There's a very good article on Edmunds that explains more details for holdback, including a table for holdback rates for all manufacturers: http://www.edmunds.com/car-buying/dealer-holdback/ The FFH competes with Camry but Toyota only has a 2% holdback, and it's figured on base MSRP (before options); unlike Ford which is calculated on total MSRP. Therefore, Toyota dealerships have much less wiggle room, so you clearly have an opportunity for lower pricing on a comparably equipped Ford.

 

Another item to consider is buying a current year model when new year models arrive. Dealerships get another 1-2% holdback for selling prior year inventory on top of the normal holdback. I've leveraged this info in the past by buying a vehicle in Oct/Nov when the newer model year cars are on deck. I wouldn't consider making a purchase on a prior year unless I could get below-invoice pricing. The dealership is extra anxious to rid themselves of prior year cars so that's about the only time (if ever) they'd be willing to dip under invoice. Otherwise, negotiating into holdback territory is verboten.

 

The only real value in educating oneself on holdback rates is simply to know with certainty that if a dealer indicates they're not making any money on a sale (say, when you offer an at-invoice price), they're flat out lying. Dealers and salesman don't make the money they used to because of much transparency provided by the internet and organizations such as Consumer Reports. However, we all must be believers in a free-market capitalist economy and the dealer must make a profit. So the question to the consumer is, how much over invoice are you willing to pay; nevermind the holdback.

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Would the invoice price include all the other cash back incentives and Trade Assist cash?

- No. The invoice price is the invoice price. Even Edmunds.com shows incentives separately. Recall that incentives are year/model-based and of limited duration. Depending on the time of year, projected sales numbers, and whether consumer-A vs. consumer-B qualifies (college student, fireman, military, Ford loyalty bucks, etc.), the incentives vary, change often, and dealerships may offer additional incentives. The MSRP (aka 'sticker price') may show either some Ford discount on a particular option package and the dealership may also have listed a discount, or more often, dealer-installed add-ons (e.g., paint protectant) or "market value" increases. Sometimes a hot car (new Shelby) will be marked-up by the dealer. When I viewed the FFHTi, for example, they had a markup listed, and quickly backed up when I stated I don't pay those things.

 

Trading a car.

- Different thread but I'll offer you this. Trade-in value is ALWAYS lower than Private Sale or Retail. Retail is what a dealer expects to sell it for, and their profit is made from your trade-in price. If you show me someone that got a way better price on their old car than trade-in value, I'll show you someone that paid closer to MSRP on the new vehicle. NEVER tell a salesman you're trading until you've settled all costs on the new vehicle. You're surrendering any leverage on pricing, as that little nugget is an ace in their pocket when they know it up front. That is, you'll be led to believe you're getting a great deal on a trade-in, when in fact, they're making up the difference on the new vehicle. I've had salesmen meet me at the car as I'm pulling in and "Hi, trading in today?" is one of the first questions they might ask. A good salesman will work that question into general discussion while you're perusing the lot. Whether or not I really am trading, my answer is always NO. Once you're about to sign for the new one (i.e., final price agreed upon), put the pen down and say, "ya know, I was going to sell my old one myself, but what would you give me on a trade-in?" Now you can assess the value of the trade-in offer without having them confuse you with the price value on the new one. If you feel like you're getting robbed then on the trade-in deal (you can negotiate that offer, of course), then you have the option of walking out and trying a different dealer. If you're not in a hurry and have the energy, you can alwyas get a better price selling the old one yourself.

- Fact: most dealerships make more money on used cars than new. That's why they love trade-ins. A good deal on a new car is somewhere in the neighborhood of $500 (or less) over Invoice (highly dependant on model demand, economy, etc.). Now check that KBB source you referenced - there's way more than $500 difference between Trade-in and Retail on most cars. Different dealerships use different sources, too (KBB is one, NADA another). Look up those values BEFORE going in so you what to expect. Then be honest about your vehicle, whether it's in "fair" condition, vs excellent, etc. Those are highly subjective but decide on your lowest acceptable price so you can judge their trade-in offer. Understand that a vehicle purchase and trade-in invokes an inherent adversarial prospect with the dealer (they want the highest, you want the lowest), and that's capitalism at its finest (as it should be), but trust me, they're not your friends. Arm yourself with knowledge, and posting to this board is a good start. :)

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A quick question regarding the negotiated price. Does it include the destination fee or not?

- The way you describe it, not likely, but it should have been. They also didn't include taxes, doc fee (several hundred $), etc. If you said something like, "I want it for $nn,nnn on the road", that says you want all the fees included in the price you're offering. Otherwise, if you didn't talk about it, the'll naturally tack those on to the sales price. You should call and ask them, as there are no rules for that, so no one here can tell you with certainty about the destination fee when they weren't privy to the communiques with your salesman.

- That $1k discount on the new vehicle looks like the FFH Customer Cash in lieu of accepting their 0% on financing. Ford gives that to everyone (no sweat off your dealership's back), whether they sell that car for $10 or $100,000. So it has nothing to do with your trade-in. They're using that as leverage to push the paid price down for your trade.

 

We're not here to tell you that you made a mistake or did a great job on your negotiation shills. If you're content with the terms, then that's all that matters, regardless of what anyone says. Remember, the dealership is there to make as much profit as possible; that's their job. You'd and I would do likewise if it were ours. It's the consumers job to educate themselves (or not) but as long as you're happy with the deal, then congratulations are in order, you're the owner of a Brand New FUSION!!! :) You're going to love the car by the way.

Edited by bcrisp

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What it all boils down to is if YOU are happy with the price paid. When all is said and done and you are ready to sign on the line, as long as the final cost put down on that document is what you are willing to pay for it, then you did good. It's that final line on the paper, what you pay in cash or finance thats important, that cannot be changed once you sign. Financing however is where you can get screwed after signing, read that one carefully, as it shows what you financed AND what you will have paid once you make that last payment. They can also tack things on here that would not be on your Bill of Sale for the car, such as GAP insurance, or finance insurance(forget what thats called).

 

I now I am paying more for mine than I should be, but I had other underlying circumstances that caused it, but I am happy with the car, and dont mind paying a little extra to have it, and that is what matters the most. I was a bit more upside down on the 2010 due to the drastic drop in value when the 2013 came out, so some of that rolled into the price of my HyTi, but when I got my Flex, the difference between what I owed on the BD and its value, and the deal they gave me on the Flex it worked out I paid MSRP on the Flex after taxes, so happy with that deal too.

 

The bottom line is, I can afford both vehicles, and I like both vehicles, and happy with them both. That is how you should look at it.

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I agree 100% with acdii, and that's what I meant by If you're content with the terms, then that's all that matters. Same goes for hybridbear's post.

Edited by bcrisp

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larryiwill,

 

I don't live in Alabama but your rates/fees should be applied per the State you're registering your vehicle. Rather than provide my unqualified opinion (I'm not a tax attorney or legislator) as to what the charges are and under what conditions, I found some source data on your State's website that you can use in your discussion w/DMV and dealership.

 

What Is The Tax Rate?

Source: Alabama Dept of Revenue - http://revenue.alabama.gov/salestax/cutax.cfm

Automotive Rate - 2%

“If you purchased an automotive vehicle from outside the state and did not pay the casual sales and use tax when you purchased your tag, or if no tag is required for the vehicle, you owe use tax at the rate of 2% of the purchase price. Examples of items not requiring tags which qualify as automotive vehicles include off-road motorcycles, ATV's and self-propelled construction equipment.”

 

“General Sales Tax” = 4% (not motor vehicles!)

http://revenue.alabama.gov/salestax/staterates.cfm

 

Registration (Tag) Fee: $23

Source: http://revenue.alabama.gov/motorvehicle/mvforms/feeschedule.cfm

Maybe the ‘transfer’ rate is $16.50 from your old car. I'm sure they used the new tag fee out of habit or didn't realize you want to transfer a tag.

 

Sales Price, as defined by Alabama Code, Section 40-23-60:

http://alisondb.legislature.state.al.us/acas/CodeOfAlabama/1975/coatoc.htm

(10) SALES PRICE. The total amount for which tangible personal property is sold, including any services, including transportation, that are a part of the sale, valued in money, whether paid in money or otherwise, and includes any amount for which credit is given to the purchaser by the seller, without any deduction therefrom on account of the cost of the property sold, the cost of the materials used, labor or service cost, interest charged, losses or any other expenses whatsoever; provided, that cash discounts allowed and taken on sales shall not be included and sales price shall not include the amount charged for property returned by customers when the entire amount charged therefor is refunded either in cash or by credit.

 

I'll also add that you should ask how the car is arriving in Alabama from Maryland. Due to high transportation costs (freight train, truck), they're likely having someone drive it down. Understand that you'll be absorbing the depreciation on that many road miles before you even take possession. You'll then need to be extra diligent about inspecting the car on arrival, before you accept it. Did the driver spill a McDonald's drink on the way down? Maybe he picked up a nick or two in the paint from rocks kicked up by a truck on the road. Did someone bang the door with their door while he was at a rest stop?

Edited by bcrisp

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I count 118 words in that runon sentence.

-- That's why you have to be a trained lawyer to understand it :) Verbose language helps justify their fees.

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Bcrisp: Thank you for what you found. I tried to find that info online and could not.

I plan to fly to Maryland with my wife, $149 each. We will visit her brother and sister in law for a few days. They will pick us up and take us to the dealer. Tomorrow he will drive to the dealer and check out the car for me before I buy the tickets. Other wise I would just fly up alone. Then we will drive it back home. its about 10 hours. A nice little trip.

 

Since I'm less of a lawyer that you, please further explain this.: Should they apply the credit before or after they calculate the Tax.?

After reading the page you linked. It appears to me its my responsibility to pay this tax not theirs. Also this comes in AFTER I purchase the car so the discount should have already been applied.

 

(10) SALES PRICE. The total amount for which tangible personal property is sold, including any services, including transportation, that are a part of the sale, valued in money, whether paid in money or otherwise, and includes any amount for which credit is given to the purchaser by the seller, without any deduction therefrom on account of the cost of the property sold, the cost of the materials used, labor or service cost, interest charged, losses or any other expenses whatsoever; provided, that cash discounts allowed and taken on sales shall not be included and sales price shall not include the amount charged for property returned by customers when the entire amount charged therefor is refunded either in cash or by credit.

again thank you.

 

I believe the invoice should look like this:

msrp / 31,065.00

selling price / 27,000.00
freight / 795
dealer proc / 200

rebate / - 1,000

Selling Price / 26,995

taxes / 559.9

licence (tag transfer) / 13.42
total 27,568.32 out the door

 

 

I hope I didn't portray myself as a lawyer because I'm the furthest thing from it. Okay, maybe not THE furthest thing, since I'm not writing you from prison. I swear! :)

 

From reading the highlighted text, I would interpret your State sales tax law to read that you're paying tax on the initial sales price withOUT consideration of any rebate/incentive. Your credit then applies after taxes are levied. That would be plausible, given that lawmakers generally make these laws to benefit the State's revenue, not the consumer's. So the higher price wins (for them).

 

Note that Destination is also tallied in the sales tax levy. Based on the itemized pricing you listed, "freight" = Destination charge. Everybody pays Destination and it's listed on the factory sticker. That accounts for hauling that vehicle on a train from Mexico to the original destination dealership lot. That freight charge is not trucking it to Alabama from Maryland. That would be extra but I see you're making a little vaca out of the deal, and any time spent like that with your family is absolutely priceless!

 

I grew up in Baltimore so say hello to the Ravens for me, and if you get time, pick up a crab cake or two (or three or four or five)!

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