Buying a new car is one of the biggest and most important purchases you're likely to make. You should know as much about the process as you can to save yourself money. Even saving a few percentage points on the cost of your car can save you hundreds of dollars. One of the most important things to do when buying a car is to negotiate the price with the dealer. Car prices are rarely firm, and negotiation is an important part of almost every sale for a dealer. To this end, you'll be able to negotiate the best deal if you know as much as possible about how much the dealer has paid for the car.
Find the dealer invoice price by consulting a reputable car buying guide. (See Reference 1 and Reference 2). This gives you the cost that the dealer initially paid to the manufacturer to have the car shipped to the dealership, which is usually substantially ($2,000 to $3,000) less than the sticker price, termed the Manufacturer's Suggested Retail Price (MSRP).
Calculate the "holdback" of the vehicle according to its manufacturer. The holdback is a manufacturer's discount to the dealer that is usually invisible to the customer, because it is invisibly added to the dealer's invoice price and then refunded to the dealer by the manufacturer at a later date, allowing the dealer to make money on the car even if you manage to haggle the price down to the "invoice price." The exact percentage of this holdback for each manufacturer is available in most new car buying guides, and is calculated as a percentage of the MSRP.
Calculate the cost of the percentage of the holdback based on the MSRP of the car. Then subtract that number from the invoice price to get nearer to the actual value of the car. Add to that number the cost of the options you want, as stated on the invoice. For example, the holdback cost of a Chevrolet with an MSRP price of $20,000 would be $600, since Chevrolet dealerships have a 3% holdback, according to Edmunds.com. (See Reference 1.) The invoice price quoted by the dealer might be $18,000, so subtract $600 from $18,000 to get a $17,400 actual dealer price for the new car (though don't forget to add the cost of any other options).
