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• What the dealer actually paid for the vehicle is the Dealer Invoice. There are a number of good on-line sources for this including Kelly Blue Book (KBB.com) and Edmunds.com. (Be aware that the invoice may include an advertising charge for joint advertising campaigns. It is a real per car cost to the dealer, i.e. it is not overhead since it is paid only when a car is sold. It does show up on the invoice that the dealer gets from the manufacture, but it is not found on the online sites that give you dealer cost. It tends to run around $300-400.)
  
  
  
• The Holdback is the second component of true dealer cost. The holdback is a rebate that is paid directly to the dealer by the manufacturer for each car sold. Holdbacks for Chrysler, Ford and GM are 3% of the total price of the car. Holdbacks for foreign makes are 2%-3% depending on the manufacturer. Edmunds has a good Data Base of these.
  
  

• Dealer Incentives: Surprise! In addition to the holdback there may be other hidden incentives to the dealer that you can only get if you know they are there. Otherwise the dealer keeps the incentive.
  
  
  
• Rebates: There may also be 'Cash Back' advertised rebates which they must give to you if you buy the car. (However, you need to know what the rebate is in advance since it will effect your opening offer to the dealer.)
  
  

 
Dealer cost $20,000 
 
Advertising charge 400 
 
Holdback - 3% of MSRP -600 
 
Hidden incentive -1,000 
 
Actual dealer cost $18,800 
 

• Authority Limits: This is the standard ploy where the salesperson says, 'I'll have to go ask the sales manager.' One way to handle this is to simply treat the salesperson as a messenger. Or you might play the broken record game, repeating your initial offer and telling the sales representative to 'go
  
  
  talk to the manager.'
  
  
  
• Keeping You Waiting: It's a common tactic to keep the buyer waiting, hoping that it will make him or her anxious and nervous. The counter to this is to be totally prepared, bring a book or some work to do, or make some phone calls on your cell phone. This shows that you are totally relaxed and unconcerned and will not be affected by their waiting game. One person I know brings an alarm and tells the salesperson that they have an hour to close this deal or she’s leaving.
  
  
  
• The Offer Check: Some dealerships demand that you give them a check to show your 'good faith.' This is ludicrous. If they tell you that they won't negotiate unless you give them a check, get up and head for the door. Their policy will change fast.
  
  
  
• Lowball/Bait and Switch: The idea is to quote you an unusually low price over the phone (or in an ad) to get you into the dealership and then, when you get to there, the salesperson says that the sales manager wouldn't accept the price or the salesperson 'discovers' that he left out a thousand dollar option package or that you don’t qualify for all the rebates in the ad. If you know your pricing, you should be able to spot the lowball right away. Deals that are too good to be true are always bait and switch.
  
  

• Add-ons You Should Not Buy: There are a number of items that some dealerships try to sell that you absolutely do not need. These can include undercoating, which can even damage the car; Scotchguarding, which you can do yourself for a few dollars; paint sealant and preparation charges (The factory pays the dealer for preparation).
  
  
  
• Extended Warranties: An extended warranty is insurance. We generally buy insurance for risks that we cannot tolerate. We accept a $500 collision insurance deductible because we can tolerate the risk of a $500 loss. Are auto repairs, once the car comes out of warranty, an expense you feel you cannot tolerate?
  
  
  
• Selling Your Used Car: You will almost always get a better price if you sell your used car yourself. The advantage of selling to the dealer is that you don't have the hassle, and in most states you only pay sales tax on the net amount that you actually pay to the dealership.