Don’t Blame Your Car Dealer – Car Pro Commentary

Two years ago this month, I wrote a much read article titled Why You Don’t Like Your Car Dealer. The car dealers I know all over the country loved it, but the manufacturers hated it. I pointed out the fact that the automakers have continually squeezed dealers’ profit margins.
We pay a lot of attention to what the manufacturers are doing, how many cars are sold, how many are in inventory, what the rebates are doing, etc., but the truth is, the only true customer a manufacturer has is its dealers. A car company makes a car today, it rolls off the assembly line, the dealer is billed for it, and then it is the dealer who must figure out how to sell it, and hope he or she can sell it for more than they paid for it. You see, the automakers set the retail price of the car AND they set the price the dealer pays.
I am hyper-sensitive to telling the truth when on the radio shows, and go to great lengths to make sure I do not leave anything out, or say anything that could be misunderstood. I take this very seriously, but recently on the nationally syndicated show, I made a statement that did not even sound true to ME, and I was saying it. The topic that moment was regarding markup of cars. By that, markup is how much room a dealer has from MSRP to dealer invoice.
Savvy buyers know that on all cars, there is MSRP (window sticker price), there is the dealer’s invoice price, and built into the invoice price in most cases is what is called dealer’s holdback. It’s been around forever and it is a kickback of sorts the dealer gets from the factory quarterly or yearly. Dealers use this money to help them offset their commissions, rent factor, staffing, loan cars, etc. For most vehicles, this amount ranges from 2-3% of the MSRP.
For most dealers and consumers, the benchmark to start negotiating is from dealer invoice, and you go up from there. For the consumer, this is a much smarter way than trying to go from MSRP down. Manufacturers continually raise the dealer’s net cost more than the MSRP. The spread-or markup-continues to dwindle, making it harder and harder for dealers to offer discounts, while in a tough economy consumers want a great discount.
Two years ago, I cited an example of the then-new 2011 Ford Fiesta. I looked at an actual dealer invoice on a stripped down model with an MSRP of $13995 including freight. Dealer invoice on the car is $13842. Yes, $153 spread. I have to admit, that shocked even me at the time. I checked an identical new 2012 today and the spread dropped to $114.
For the consumer who doesn’t know this, asking a dealer to come off $1000 from MSRP on this new 2012 Fiesta would seem to be a more than fair deal. Even with the dealer’s holdback, he would lose a net $490 before he paid the salesperson or prepped the car, and who does the consumer get angry with because the “greedy” dealer would not come off a measly $1000 from sticker? His neighborhood dealer. He or she walks away, vowing never to go into that dealership again. Yet it was the maker of the car that set the MSRP AND the amount the dealer paid.
Don’t think this is exclusive to Ford either. A down-the-line 2012 Chevy Cruze has $258 between MSRP and dealer invoice. A new Honda Fit has $249 from invoice to MSRP. A new Hyundai Accent has $299 mark-up.
Bottom line, the next time you want to get a fuel-efficient car and want your dealer to discount it and they cannot, don’t blame them. Blame the manufacturer.

1 Comment
  1. Byron Hodges 6 years ago


    Thank you very much. I am in the process of buying capo Cadillac DTS with 25000 miles.
    Does the same hold true for used cars? I take my car to the dealer for all service and maintenance.
    I know it is more expensive, but when you find a good service adviser, it really helps. It doesn’t cost you any more to go first class, you just don’t go quite as often.

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