Deciphering New-Car Price Stickers
Common wisdom says you should never pay the sticker price for a car, but how can you dicker over price when you don't understand the charges listed on the window sticker?
U.S. law requires all new and used cars have what is often called a "Monroney" posted on a window, with the exception of vehicles weighing more than 8,500 pounds, although most dealers voluntarily include stickers for these vehicles. (The informational sticker was named for the congressman who introduced the legislation.)
The sticker must include the following information, although additional details are usually listed.
- The manufacturer's suggested retail price ( MSRP)
- Engine and transmission specifications
- Standard equipment and warranty details
- Optional equipment and pricing
- City and highway fuel economy ratings
- Crash test ratings
To help you bargain intelligently next time you buy a car, read on for detailed explanations of what you will and won't see on window stickers.
1. ADM/ADP: The Additional Dealer Markup or Additional Dealer Profit is a fee to increase dealer profits on the car by starting negotiations at a higher-than-expected price. The theory is the same as with real-estate prices. You list a home at $100,000, anticipating you'll actually get $95,000.
2. Customer Rebates: Also known as cash-back or buyer incentives, customer rebates are offered by the vehicle manufacturer or dealer as a discount attracting buyers who meet certain criteria. This may include students, those who own certain vehicle brands, military families, etc. The popular Cash for Clunkers program was just such a rebate. Cars.com has a detailed listing of available new car rebates.
3. Dealership Add-ons: Add-ons are usually detailed in a second window sticker listing every little after-market extra provided by the dealer. Extras may include everything from leather seats to pin-striping and can run into the thousands. Be careful as many of these additions fall more under "wants" than "needs."
4. Dealer Financing: Dealer's want to keep your financing in-house as they make a healthy profit off your interest rates. If you're credit rating isn't perfect, you'll frequently find much better interest rates through outside financiers, such as your bank, credit union or other lendinginstitutions. It's always a good idea to arrange your financing before you begin shopping for a vehicle. Keep in mind your monthly rate will be based on the interest rate and term (or length) of the loan.
5. Dealer Prep: This is dealer lingo for "We want more money" and represents pure profit for the dealers. They've already been paid by the manufacturer for the cost of preparing the car for sale, for heaven's sake. Many stickers don't provide a breakdown of prep costs, so make sure you ask for specifics and have no qualms about telling t hem you refuse to pay up.
6. Dealer Fee: You're paying for the dealership to process your paperwork if you pay a Dealer Fee. Many don't charge such fees and you shouldn't pay for a dealership to do its job. If the sales rep insists on charging you a dealer fee, you should walk away from the deal.
7. Destination and Delivery Charges: Catalogs call such charges "shipping and handling." D&D Charges, usually between $500 and $1,000, pay the dealer to transport the car from the plant to the dealer. This non-negotiable fee is usually the same cost for all models within a brand, and doesn't depend on the actual shipping distance.
8. Manufacturer's Suggested Retail Price: The MSRP is the vehicle's published base price, before adding on options, destination charges and other fees. As a "suggested" price, dealers are free to ask a higher or lower price. The idea behind MSRPs is to help to standardize prices among locations. While some stores always sell at, or below, the suggested retail price, others do so only when items are on sale or closeout.
9. Market Adjustment: A Market Adjustment is actually a profit adjustment based on supply and demand and is usually charged on cars that are scarce. Man y dealerships now add such a charge to the extremely popular hybridPrius line from Toyota. Some manufacturers discourage the practice. You can try to negotiate the fee, but dealers don't have much incentive to work with you if the vehicle is selling well.
10. Options: A vehicle's base price refers to a thoroughly stripped-down model. On average, you should figure about $3,000 to $8,000 above the base rate for options that sometimes seem like they should come standard, like cruise-control and power windows. No-charge options are usually limited to paint, interior, and transmission choices. For-charge options are always negotiable.
11. Total Price/Invoice Price: This is the total retail price for the vehicle, including the MSRP, options, destination charge, and any market adjustments. Salespeople want to sell the vehicle for as close to this price as possible. Negotiate up from the Dealer's True Cost, not down from the Total Price. All car-buying scenarios come with different variables (depreciation rates, interest rates, purchase prices, insurance costs, mpg ratings, etc.). Compare one buying scenario with another with an online calculator before you begin to deal.
WHAT YOU WON'T SEE ON THE WINDOW STICKER
1. Add-on Interest: This is the interest computed at the beginning of the loan and added to the principal. You'll have to pay this entire figure, even if you pay the loan off early.
2. Dealer Incentives: Manufacturer pay dealers an incentive for selling certain vehicles, usually the slow-selling models. Dealers may pass this savings on to you or keep it as an additional profit. These programs come and go quickly and aren't announced to the public.
3. Dealer Invoice Price: This is the price printed on the dealer's invoice from the manufacturer. It doesn't necessarily reflect the price a dealer actually paid for the vehicle as there often are behind-the-scenes bonuses that boost the dealer's profit margin. You can save hundreds of dollars by looking beyond the dealer invoice price.
4. Holdback: Holdbacks are a percentage of the sale price awarded by the manufacturer to the dealership for selling the car. Typically, a holdback is about two to three percent of the price paid by the buyer to ensure the dealer makes some money on the car.
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