Car Buying Advice

When purchasing a car you’re bombarded with a lot of information and terminology. To get the best deal, though, you need to know how all the pieces fit together, especially when it comes to autos pricing. Following is a rundown of common pricing terms and why you should be familiar with them.

What you see on the window sticker

Manufacturer’s Suggested Retail Price (MSRP). The MSRP is the vehicle’s published retail (base) price, without options, destination charge, or other fees. Because it’s “suggested,” dealers are free to sell the car at either a higher or lower amount.

Optional equipment. These are the features and/or packages you pay extra for. Sometimes there are no-charge options; these are usually limited to paint, interior, and transmission choices. Keep in mind that the price of options can be negotiated.

Destination charge. This fee covers the cost of delivering the vehicle from the factory to the dealership. This non-negotiable fee is usually the same cost for all models within a brand, and doesn’t depend on the actual shipping distance.

Market adjustments. Sometimes you will see a line on the window sticker or a separate sticker that adds an additional charge to the vehicle’s price. This is a fee the dealer tacks on, usually to cars that are in high demand, in an effort to make additional profit. You can try to negotiate this figure, but if the vehicle is selling well the dealer won’t have much incentive to work with you.

Total price or “sticker price.” This is the total retail price for the vehicle, including the MSRP, options, destination charge, and any market adjustments. Typically a salesperson will try to sell the vehicle for as close to this price as possible, or perhaps offer you a token discount or manufacturer discounts. To get the best price, however, it’s better to negotiate up from the dealer’s true cost, described below, rather than negotiate down from the sticker price.

For more information, see How to read the window sticker.

What you don't see on the window sticker

Dealer invoice price. This is the price printed on the dealer’s invoice from the manufacturer. However, this isn’t necessarily what the dealer actually paid for the vehicle. There are often behind-the-scenes bonuses, such as dealer incentives or a holdback, that give the dealer more profit margin. Looking beyond the dealer invoice price can sometimes save you hundreds of dollars.

Rebate. A rebate is a direct-to-buyer incentive from the manufacturer. Since it comes from the automaker, disregard it when negotiating with the dealership. You will get the same rebate no matter what price you pay for the vehicle.

Dealer incentives. This is money that the manufacturer pays the dealer for selling certain, usually slow-selling, models. This money can be passed on to the buyer in the form of a price reduction, or kept as added dealer profit. This is how a dealer can afford to sell a vehicle for “dealer cost” or below. These programs come and go quickly and aren’t announced to the public. Buyers can learn about dealer incentives on some autos-pricing Web sites or through Consumer Reports New Car Price Reports.

Holdback. Most manufacturers offer dealers a percentage of the MSRP, or a percentage of the invoice price, as a refund upon sale of the vehicle. The typical holdback is 2 to 3 percent, meaning a dealer can still make a profit on a vehicle sold for "invoice," even without dealer incentives. Holdback information can be hard to find, although it is listed in Consumer Reports New Car Price Reports.

The dealer’s true cost. This is the dealer invoice price, minus any incentives and the holdback. To get the lowest price, begin your negotiations with a starting price that is about 4 to 8 percent over the dealer’s true cost. You can get a close estimate of the dealer’s true cost with the CR Wholesale Price, which is included in our New Car Price Reports.

Arming you with behind-the-scenes dealer incentive and holdback information as well as knowledge of customer rebate and incentive amounts, the New Car Price Report Canada provides you with all the tools you need to get the car you want at an optimal price.