Saturday, January 2, 2010

How transparent is transparency

Or are car invoice prices really invoice prices? I applaud the Internet for making invoice prices widely available. Before the age of the Internet we had to comb through special subscription magazines or look through car buying books to get the same information. Yet is this really the invoice price?

From Edmunds:

The pricing of cars is a complicated process. To simplify things, consumers have been told to look at the invoice price of a car and assume that's what the dealer paid for the car. Offer a small amount over the invoice and you have a great deal. While invoice provides a valuable reference point, both holdback and dealer cash increase the dealer's profit with financial sleight of hand.

Holdback is usually either 2 or 3 percent of either the invoice or the sticker price of the car. On a $20,000 car that's either $400 or $600 that is held out of the initial deal until after the car is sold. This allows dealers to sell a car at invoice price and still make a profit. Check the holdback percentage before going shopping but don't try to negotiate on holdback, since dealers consider this money sacred. Still, knowing it is there will help you press for a better price.

Dealer cash is even more significant. When a car isn't selling well, the manufacturer will sometimes offer an incentive — often as much as $2,000 — but only let the dealer know about it. This is like a wild card in negotiating, and it lets the dealer claim he's taking a loss while still actually making a nice profit. Dealer cash is listed on under Latest Incentives.

While transparency is generally a good thing at some point there is a pushback when invoice will no longer be the "true" invoice as is the case now and transparent is no longer quite as transparent.

When meetings are open to the public in the name of transparency there are generally pre-meeting meetings that are not.

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