New & Used Car Cost

Figure a Car Dealers
New and Used Car Invoice

Figure new and used car cost...
The 6^th of 11 essential steps in the car buying guide

Here we'll take a look at how to figure the dealers cost of both new and used cars.

Figuring a new cars cost is fairly easy, you just need to know where to find the invoice. Because of this, I won't spend too much time on new cars, but I will show you where to find new car invoices and I'll shatter some new car myths.

Used cars present a bit more of a challenge, but don't worry, I'll show you some great tips and guidelines to keep in mind in order to figure these costs fairly accurately.

New Car
Invoice Prices

Check out any one of these sites and you should be able to easily find the invoice for most makes and models of new cars:

Edmunds.com | Yahoo! Autos | www.CarsDirect.com

Three New Car
Invoice Price Myths

From what I've seen, these myths seem to have been started by the "no know" car buying tips "gurus" that know very little about this business and/or buying cars, but promote scare tactics to make their websites appear to be valuable.

Myth #1:
Holdback Is Hidden Dealer Profit

Fact:
Holdback is not hidden dealer profit and is designed to reimburse a car dealer for flooring costs associated with financing a new car from the factory while it is for sale on the dealers lot.

Yes, it is possible to buy cars below the new car invoice and dip into the dealers holdback, but it is not a hidden profit.

Myth #2:
New Cars Can Easily Be Bought For Well Below Invoice

Fact:
It's true you can sometimes buy vehicles below the new car invoice, but most stories you hear about customers buying "well below" invoice should probably have an asterisk next to the explanation.

Oftentimes the vehicle was a "loss leader" ad car, the rebate was subtracted from the sale price, it was a dealer demo car or it was bought near the end of a factory to dealer incentive program and a retroactive bonus was on the line.

So don't get your hopes up too high, unless you're buying a new Chrysler or Dodge. You can probably buy those, with their recently announced restructuring and dealer closings, for a substantial discount.

Myth #3:
A Dealers "Marketing Money" Is Just Fluff and Extra Profit

Fact:
As with the holdback, this money is to assist dealers with some of their monthly expenses for advertising. The rough average to market a single car for sale is between $250 and $400. It's not cheap to sell cars. Again, you can thank the "no knows" for this myth.

Figuring A Car
Dealers Used Car Cost

I've spent a lot of time covering this topic in my used car values page and instead of repeating it all here, I'll highlight some quick pointers to help you out.

Using Kelley Blue Book as the reference for this example, dealers take into account the KBB Wholesale value, KBB calls the wholesale value the "used car invoice," when determining what they'll buy a car for and very rarely reference the trade in value.

A quick way to figure the KBB Wholesale value, the "used car invoice," is to add the KBB private party value to the KBB trade in value and divide by two...This should get you close to the wholesale value.

Now that you know the approximate wholesale value, and have a rough idea of the "used car invoice," it's important to keep in mind that a dealer wants to own the car for less than wholesale value after all reconditioning has been performed.

They'd like to own it as far back as possible, because it leads to more profit when the vehicle is sold.

Typically, a dealer will own a used car for $500 to $2000 back of wholesale value. That's not always the case, and sometimes a dealer is stuck in a car and owns it for more than wholesale, but I'd say that's a fair average.

Here are some
additional tips to consider:

• The newer the car the farther back of wholesale they will buy the vehicle.

• Imports cost dealers more than domestics, namely Toyota's, Nissan's and Honda's.

• Current market conditions can change everything.

  When gas was $4.00 a gallon, large trucks and vehicles with larger engines that have bad fuel economy were bought for well back of wholesale. In fact, those vehicles are still a little "soft" as of this writing.

• Cars with mileage over 100,000 miles will be hit harder than KBB adjusts for mileage.

  There are limited lenders for vehicles with miles over 100K.

• Cars with pink polka dots will have a used car cost well below their KBB wholesale value.

  Any car that is a "one of a kind" like this will be worth substantially less, because there is a smaller market to sell to.

• The average reconditioning cost for a car is between $400 and $800.

• The average Certified Pre Owned vehicle inspection is between $400 and $800.

• The average transportation cost is $145, if bought at auction.

• The average auction fee is 1 - 1.5% of the sale price.

For your average 4 year old car with average miles and in good condition, it's safe to assume (after all expenses) the dealers cost is $500 to $1500 back of wholesale.

However, for a current model year used car, they can own the car for $8,000 back of wholesale.

As you can see by these used car cost examples, it can be difficult to narrow the actual used car cost down to an exact science, but all in all the rules from above will get you close to the actual cost more often than not.

As mentioned before, I go into even more detail on my used car values page. Yes, believe it or not, I actually have much more information I give there, but you have plenty of information available here to get you close to most dealers used car costs.

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