The Ins and Outs of New Car Pricing

The day a person buys a new car starts with an air of excitement. The driver typically walks into the dealer's showroom walking on a cloud and is ready to own that dream. Many of those same drivers stumble out comparing their experience to the nightmare of taking the hardest math test ever created. The numbers can be overwhelming. But there is no mystery to how a dealer comes up with prices. With some understanding of the process, you have a better chance of paying the price you ultimately want to pay.

• Dealer's Price: If you think the prices proclaimed in the television and newspaper ads are what your dealer paid, nothing could be further from the truth. The dealer pays what is called the true cost of the vehicle. This is the base price that is charged so the dealer can take ownership and sell the auto on the retail market for a profit. In other words, it's the wholesale price. This is not to be confused with the dealer invoice price. That is the true cost plus incentives added on to help the dealer make a profit while selling what the manufacturer wants to see move off the lots faster.
• Advertised price: When consumers hear about prices, they are learning about the Manufacturer's Suggested Retail Price, or MSRP. It is the base, or retail, price minus any options or fees that may be incurred before the vehicle went on sale. This price, however, is not set in stone and dealers can charge less or even more than that amount.
• Sticker Price: When a customer sees the car in person, the sticker, or total, price is displayed on a on a list on one of the vehicle's windows. It also is the number that a salesperson sets as the target to get the buyer to pay. This price includes the MSRP, destination charge (what it cost to get the vehicle from the factory to the dealer) and market adjustments (a fee from the dealer usually added to those cars most in demand). Also included are charges for optional equipment, which are the non-standard extras such as upgraded upholstery and transmission.
• Customer Price: This is what the buyer ultimately pays. Starting with the sticker price, the customer then begins negotiating a price that is lower while the salesperson usually wants to keep close to it. But since there are sometimes are incentives to help the manufacturer get rid of some models, there is room to come down. Those incentives are not always broadcast to the public. Sometimes there is a rebate, a discount that is directly offered by the manufacturer to get people to buy a certain model. Often the rebated amount is subtracted from the final customer price but sometimes it arrives later in the form of a check from the automaker.

With this information in mind, a trip to a dealer can be less stressful. That way the day you buy that dream can be a happy one.