Today’s car buyers are using the Internet to make great deals when buying cars from dealers. It’s now become the exception for consumers to pay the full sticker price for new cars. Instead, the norm is to have customers walk into a showroom knowing the dealer’s actual invoice cost on the car, truck, or SUV they want to buy. This puts dealers at a disadvantage when negotiating the selling price. Dealers in turn have become more intelligent about how they structure a car deal to make sure that they make enough money in other areas--other than the purchase price--to survive.
Yesterday we learned that car dealers have many opportunities to make a profit when selling a car. Each opportunity is called a profit point. The selling price of the vehicle is the first profit point that most customers encounter.
2011 Ford Mustang
Let’s take the example of a brand new Ford Mustang with a 3.7L V6. Go to www.kbb.com, and in the New Car box on the left side of the home page click on Search by: Make & Model. Follow the steps to discover the Manufacturer Suggest Retail Price (MSRP) in your area. Add your ZIP to make sure the destination charge is included.
Our 2011 basic Ford Mustang delivered to my home turf, the San Francisco Bay Area, has a sticker price (MSRP) of $22,995. The dealer’s invoice is $21,928. This leaves a gross profit for the dealer of $1067. Dealers like to add accessories to this car, which increases the retail price and their profit.
What Others are Paying
The savvy car buyer will next want to know what other buyers in their area are paying for the exact same car. Go to www.edmunds.com, and in the New Car box on the left side of the home page click on Prices, Reviews, Information. Follow the steps to confirm MSRP and invoice costs are the same as above. You need to complete the Price With Options section before the destination charge is added.
The reason why we use Edmunds.com is for their True Market Value (TMV), or what others are paying. We discover that in my area dealers are actually selling the basic 2011 Ford Mustang for $22,874. However, buyers qualify for manufacturer incentives of $1,000, which brings the net cost to the buyer down to $21,874.
Ford dealers are doing a pretty good job of holding their prices on this car. This means that a smart shopper can probably do much better than this and save even more money off the sticker price.
Tomorrow we look at the second profit point that most car buyers encounter: the interest rate they pay, and other financing options.