And on top of all those things, you will hopefully buy your next car at the same dealership in the not too distant future.
What does all this have to do with reading the invoice? I wanted you to have an understanding of the big picture before we move on to the fine points, as well as see why dealerships will do fine in the long run even if the profit they make on new cars is very low.
During a recent discussion with my accountant, he asked me, "If profit is low, then why are the owners of dealerships all multimillionaires?" Well, that's because the thirst for profitability at a dealership is insatiable. To achieve profit, in an era of increasing consumer education, the game changes. Which brings me to my point: If you negotiate in relation to the invoice — say, $500 over invoice — make sure the dealership isn't building up profit in another area of the deal.
Here's an example. A friend of mine was shopping for a Dodge Grand Caravan. He showed me a copy of the invoice and said the Internet department of a local dealership said that he could have the car for the invoice price. "Great," I said. I went to the friend's house the next day and saw a shiny new Dodge Grand Caravan parked there with the dealer promotional plates on the rear.
It's a touchy thing to discuss a car deal once it's been inked, since it's a foregone conclusion at that point, so I proceeded cautiously.
"Are you happy with the deal you got?" I asked.
"Well, we got the van at invoice but..." Uh-oh. Here it comes, I thought. "When we went to sign the contracts, we found out they had included $800 for an alarm system. We bought it anyway since we were getting such a good deal — and we really wanted the van."
Here are nice, easy-going people, who were put in an awkward position. "Over a barrel" is more like it. They come in thinking they did their homework, got the best deal possible, then they get nailed for an alarm system they didn't want. The alarm system probably didn't cost the dealership more than $100.