What is Dealer Invoice? The Complete Car Buyer’s Guide

When you’re in the market for a new vehicle, knowing what a dealer paid in that car’s economy of scale can empower your bargaining power. But what is a dealer invoice, and how can you wield this knowledge to save thousands on your next car purchase?

What is Dealer Invoice Price?

Dealer invoice price is what the car manufacturer charges the dealership for a vehicle. It’s the dealer’s cost, on a wholesale basis, before the dealer adds profit and markup. This is the price that shows up on the invoice document itself that’s sent to the dealership by a manufacturer when it’s shipped to their yard.

The invoice price includes the base price of the vehicle, along with any factory options or packages and some shipping charges (but doesn’t include side-by-side comparisons with other dealers). But, as we will explain below, the invoice price doesn’t necessarily reflect the dealer’s true cost.

This differs from a purchase invoice, which is commonly used in business transactions for goods and services.

Dealer Invoice vs. MSRP: What’s the Difference?

For any current or would-be car buyer: you should know the difference between invoice price and MSRP.

MSRP (Manufacturer’s Suggested Retail Price) is the sticker price on the car window. This is the amount it costs the dealer to buy the car from the factory — and what they’re selling it to you for — along with their profit. The MSRP is always more than the Invoice price.

Dealer Invoice is what the dealer pays the manufacturer. This is the wholesale cost before the dealer marks up the price.

The percentage between invoice and MSRP is in the range of 5% - 15%, depending on what kind of car it is. Higher-end cars might come with a wider spread, while budget and popular models will have a slimmer margin.

If, for instance, a new car has a $30,000 MSRP and costs the dealer $27,500 at invoice, then the $2,500 difference is the cost of being able to label yourself boorish in an economy parking lot. But that doesn’t mean the dealer is losing money if they sell at invoice price.

What’s Included in Dealer Invoice Price?

The average dealer invoice consists of a number of different parts:

• Base Vehicle Price: The cost of the car alone, not including options or any other considerations.

• Factory-Installed Options: The extra equipment, packages and options that the manufacturer adds to a new vehicle before it ships from the factory to its first owner.

• Destination Charge: The fee for transporting the vehicle from the factory to the dealer, usually priced between $800 and $2,000, depending on the car and how far it must go.

• Regional Advertising: Some manufacturers charge fees to dealers and require that the money be used by the dealer toward regional marketing campaigns.

What’s usually Not Included:

1. Dealer-installed accessories
2. Extended warranties
3. Dealer prep fees, or
4. Dealer markups that appear on a final purchase agreement.

The Hidden Truth: Invoice Isn’t the Dealer’s True Cost

Here is where a lot of car shoppers get lost. The invoice price is not what the dealer necessarily ends up paying after all. There are multiple concealed variables that drive the dealer cost DOWN:

• Dealer Holdback: Usually 2 or 3% of the invoice or MSRP (depending on what they have listed as with holdback in “in addition to”) is returned to the dealer by the manufacturer after a car is sold. This is, in essence, a rebate that enables dealers to cover their overhead and allows them to sell not at invoice but close enough (or below) – and make money anyway. Here’s an example: on a car with a $30,000 MSRP that carries a 3% holdback, the manufacturer will give the dealer $900 after the sale is making.

• Factory-to-Dealer Incentives: This is a special bonus paid by the manufacturer to the dealer upon sale of each unit for selling a specific model, hitting a sales target or moving older inventory. These incentives aren’t visible to consumers, which can range from $500 to $5,000 or more per vehicle.

• Regional and Volume Discounts: Manufacturers dole out extra money to dealers who sell over a certain number of cars or meet regional goals.

• Floor Plan Interest Credits: Manufacturers will often subsidize (or reimburse) part of the interest on dealers’ inventory financing.

Due to these hidden rebates, the dealer may actually sell a car at or below invoice and still make money.

How to Get Dealer Invoice Pricing

There are a few credible sources for dealer invoice pricing:

• Car Research Sites: Websites like Edmunds, Kelley Blue Book and CarGurus provide you with a lot of pricing information, including invoice prices. Most require free registration to access the full data.

• Consumer Reports: Subscribers have access to extensive vehicle pricing information, including invoice prices and average dealer incentives.

• The Manufacturer Website: A few manufacturers give you pricing information, but it might not be as comprehensive as third party sources.

• Vehicle Pricing Services: Specialized services such as TrueCar and CarEdge focus on the invoice price or what others in your area are paying.

Keep in mind that when you research, also find out what the invoice price is for a particular option or package if those are options on a specific model you’re considering since those can add significantly to the total invoice price.

Using Dealer Invoice in Negotiations

Having the invoice price makes you a better negotiator, but you’ll want to be smart about how you use this information:

• Start with Realistic Expectations – In today’s market and with a high-demand vehicle, it’s not always realistic to expect to buy below cost. A fair range is usually anywhere from invoice to $500–$1,000 above on most vehicles.

• Research Current Market Conditions – Find out what others are really paying in your area. When a car is in high demand or short supply, dealers are less motivated to cut below MSRP.

• Time your Purchase Strategically – The end of the month, quarter, or model year are generally better times to negotiate since dealers are pushing to meet quotas and clear out inventory.

• Be Prepared to Walk Away – If you know the invoice price and a dealer won’t be reasonable, you have the power to take your business elsewhere.

• Mention Specific Numbers – Instead of requesting “a good deal,” mention the invoice price and give a concrete number. For instance: “I already know the invoice on this model is $28,500. I’m ready to go at $29,000 today.”

• Don’t Forget about Incentives – Manufacturer rebates and special financing offers can be combined with your price negotiations. Be sure you understand all of the incentives available and how they may apply to your purchase.

When Dealer Invoice Matters Most

It’s most useful to see invoices in these scenarios:

• Yes, when you buy regular everyday cars where supply is equal to or greater than demand. Cars like this usually have decent markups and can be talked down to the right price.

• End-of-model-year sales when dealers are trying to clear out leftover inventory to make room for new models.

• Lot age over 60 days. Dealers pay interest on inventory, and as older stock ages, they become more negotiable.

• Multiple dealership shopping. And when you are getting quotes from multiple dealers, having the invoice in hand lets you know when a quote is actually competitive.

When Invoice Price Matters Less

There are cases where the invoice price doesn’t leave you much to negotiate:

• High-demand/low-supply cars, such as best-selling trucks and SUVs or new models – sell at 100%+ over MSRP no matter what the invoice is.

• Custom orders in which you’re building a vehicle above the dealer right out of the factory, for example might not get as many discounts as lot inventory.

• Luxury and fetish cars where the experience of buying and exclusivity are part of the price, and margins are more closely guarded.

• When supplies are as constrained, driven for example by chip or other production cutbacks, the power to negotiate swings strongly in favour of dealers.

Beyond Invoice: Other Pricing Metrics to Understand

• True Market Value (TMV): How much people in your region are actually paying for a type of vehicle, offered by sources like Edmunds. This is usually more helpful than invoice in getting a sense of realistic pricing.

• Manufacturer’s Suggested Retail Price (MSRP): The first number you see, but not necessarily the one you should pay.

• Out-the-Door Price: The total price you are going to pay, including all taxes, registration fees, dealer fees and the cost of any add-ons. Be sure to negotiate the out-the-door price when dealing with other fees.

• Trade-In Value: If you’re trading in a car, look up what it’s worth independent of the new car deal so that you know you’re getting a good offer on both.

Dealers Invoice Mistakes To Avoid

• Assuming invoice price is the rock bottom figure: And keep in mind holdback and other adjusted prices will give dealers enough fat to sell below invoice (though they may not want to).

• Basing decisions solely on monthly payment: Dealers can play around with loan terms to reach a targeted monthly payment, often at the expense of your best interest. You should always negotiate the full purchase price first.

• Overlooking dealer fees: Some dealers tack on documentation fees, processing fees, or “market adjustment” fees, each of which could add hundreds and sometimes thousands to the sticker price.

• Not comparing whole offers: When you’re cross-shopping multiple dealers, compare out-the-door prices, not just the price of the vehicle. There are also dealers with lower prices, but higher fees.

• Thinking you have to pay MSRP: With few exceptions (like a really high-demand vehicle), there’s almost always room for negotiation below the sticker price.

The Modern Car Buying Landscape

The internet has disrupted the way people buy cars. Today, you can:

• Get true invoice pricing at home

• Receive quotes from various dealers without visiting showrooms

• See what others paid in your neighborhood.

• Use online-only pricing programs available from services like Costco Auto Program and TrueCar

• Take advantage of dealer competition by securing the best offers in writing via email

This transparency has squeezed dealer margins and turned invoice pricing into less of a secret weapon than a baseline possessed by educated buyers.

Is Paying Invoice a Good Deal?

In general, if the consumer is paying near or at invoice, that should be a good deal for both the buyer and seller. This way the dealer is still making money from holdback, incentives and financing or service departments but you are saving big over MSRP.

But “good deal” is a relative term when it comes to the market. But when demand is high and supply low, MSRP may be the only option. In slow times with high inventory, you can often bargain below invoice on certain models.

The trick is knowing what others are paying for the same vehicle in your market and treating invoice pricing as one of several pieces of data — not the only variable — fueling your shopping decision.

Last Minute Tips for Using Dealer Invoice Information

• Research thoroughly before visiting dealerships – Know the invoice price, current incentives and what others in your area are paying.

• Get written quotes from more than one dealer – This encourages competition and allows you to negotiate.

• Be respectful but firm – Dealers are in business to make money, but you have every right to shop around for the best price.

• It’s about the whole package, not just the price tag – Quality service, location and a dealer you trust count for something in the long run of owning.

• Focus on the out-the-door price – This is what counts, not the discrete line items that take you to this place.

• Remember that knowledge is power – Knowing dealer invoice pricing gives you the status of a smart shopper instead of an uninformed marks and allows you to negotiate a fair price on your next vehicle purchase.