Tag Archives: add-ons

Making sense of car dealer costs: a car terms glossary

car dealership terms glossary

Car manufacturers and dealers purposely hide their cost structure from the general public.  Their intent is to make it difficult for average folks to evaluate a car purchase.  The car industry makes more money if you can’t determine what is a fair deal.

To help shed some light on the subject, here is a car terms glossary that breaks down common car terms and how they should be interpreted.

Car Terms

Car Price TermDescriptionNegotiable?
MSRP (Manufacturer's Suggested Retail Price)This is the "sticker" price required by law to be shown in the window of a new car. The manufacturer decides a retail price for each model (base MSRP) and then adds on the retail price for each option. The dealer is free to charge more or less than this recommendation from the manufacturer, but MSRP is a useful guideline for both you to evaluate comparably equipped cars to each other. No need. Each dealer will set their own price and give you a quote using this as a guideline.
Invoice PriceThe price paid by a car dealer to the manufacturer for each car. This price is the same for every dealer across the U.S. However, this is not always the bottom line. There are rebates and incentives to both consumers and dealers that occasionally allow you to buy a car below invoice price.No need. This is the price to the dealer, not you.
Your Target PriceAn arbitrary number we use to give you a goal to shoot for. Never mention this number to a dealer since you do not want this to be the lowest you can go. A common formula is invoice price + 2%, but this does not factor in car popularity or current promotions. Edmunds TMV® is a good source to set a target based on market conditions and current deals people are getting. No need, this is a guideline for your own benefit. In some cases it is possible to buy below invoice, so again, never mention your target price.
Quoted Dealer PriceThe price you are quoted from the dealer. Since most dealers will not include taxes, tag, or title in their quotes, it’s easiest to use this price to do your comparisons even though it is not the final “out the door” price.Yes.
Out the Door PriceThe final dealer quote including all options plus taxes, tag, or title.Yes.
Destination FeesThe amount charged by the manufacturer to send the car to each dealership. It is the same for a specific model regardless of the dealer's location.No. Dealers usually pass this fee along to customers directly and it is rarely negotiable.
Dealer HoldbackUsually a small percentage (2%-3%) of MSRP that is returned to a dealer once a car is sold. This money is typically used to help dealers pay for finance charges they have accrued while keeping unsold cars on their lot. Keep in mind this is a "refund" of money to the dealer for what they originally paid to buy the car from the manufacturer. Usually not. Since it is basically the dealer's own money, they are often not thrilled with the idea of passing this money along to the consumer.
Factory-to-Customer (or Manufacturer) RebatesThese rebates come direct from the manufacturer to you. Edmunds can tell you what incentives and rebates are available in your area.No. The dealer has no control to negotiate them since they are direct from the manufacturer.
Dealer IncentivesUnadvertised cash that goes from the manufacturer directly to the dealer to help boost sales of a particular model. Dealer incentives can be more common at the end of a model year to help clear room for newer models. Yes. This extra cash to the dealer gives him flexibility to negotiate.
Documentation, Dealer Prep Fees, and Add-onsThese fees are a big source of margin for dealers. They cover administrative costs but are often much higher than the actual cost incurred by the dealer. Many add-ons such as fabric protection, paint sealant, and VIN etching can be performed yourself with kits from an auto-parts shop.Yes. These fees and add-ons are usually negotiable.
While it’s useful to understand all of these car terms, do not get hung up on specific fees and rebates.   It can be a hassle researching and in the end you’re only playing into the dealer’s shell game.  They shift around fees and rebates into different categories to try to confuse you.    When you negotiate a car price over email, you will ask the dealer to give you a total price that beats their competitors.  In the end, they can shift around fees and incentives all they want, but you only need to be concerned with the bottom line and getting it as low as possible.

Photo by Johnath

Negotiating Car Dealer Add-On’s & Accessories

Beware car dealership add ons and extended warranty from Finance Office

So you’ve learned how to negotiate a new car and think that guarantees you a good deal.  Well think again!  Did you know a majority of a car dealer’s profit comes from fees and add-ons in the Finance Office?

Dealerships want you to think the hard part is over and that it’s time to let your guard down.  But as you’re getting ready to sign for your new car, the Finance Manager will smoothly convince you that you need expensive add-ons and accessories.

What are Dealer Added Options?

A dealer added option is any accessory that a car dealer installs on a vehicle after they receive it from the manufacturer.   Examples include items such as floor mats, cargo covers, roof racks, VIN etching, and pin striping.   The prices of these items are not listed on the car’s MSRP sticker, but instead a dealer will typically add a second “addendum” window sticker.

Dealers add these items because they have high profit margins and most people don’t try to negotiate them!

Average Car Dealer Profit for Add-on’s (Infographic)

The image below shows how much the Finance Department really makes off everything they sell you.  Note: these high numbers aren’t even the total price you pay, they only represent dealer profit!Dealer Add On Infographic
But not to worry, you don’t really need most of these items.  Here’s a breakdown of what these items really cost the dealer and what you can do to save yourself money.  When in doubt, google a specific option and see if it’s recommended or available outside the dealership at a lower price.

Common Dealer Add-ons & Accessories

ItemCost to DealerRetail PriceDealer ProfitSuggested Action
Fabric protection (scotch guarding)$5$300$295Not necessary. If you want it, buy Scotch Gard for 9 bucks and apply yourself.
Paint protection$10$325$315Not necessary. If you want it, buy sealant or wax for 15 bucks and apply it yourself.
Undercoating$200$700$500Don't get it, most new cars come with warranties against rust and corrosion.
Rustproofing$50$800$750Don't get it, most new cars come with warranties against rust and corrosion.
Pin striping$30$300$270Not necessary. If you want it, look for an independent shop to do it after you buy.
Car alarm$300$800$500Consider this, but it will be marked up significantly at the dealership. Go to an independent dealer and save money.
VIN etching$75$200$125Not necessary. If you want it, buy a window etching kit and do it yourself for 20 bucks.
Lojack$325$800$475Consider this, but get prices from an independent installer first.
Extended warranty$800 $1,800 $1,000 Not necessary, but can come in handy. Don't buy at the dealership without shopping around first. Read how to evaluate an extended warranty.
Gap insurance$200$500$300Not necessary, but get competitive quotes outside the dealership if you are going to buy it. Read more about gap insurance.
Financing$0n/aa lot!Dealers typically add 2-2.5% in APR to loans they provide. Find your own financing before heading to dealer. Ask if they can beat it.

Negotiating Dealer Add-Ons

Many of the add-ons you will be offered are unnecessary or can be purchased outside the dealership at a significantly lower price.  There are two main tips for negotiating add-ons:

  1. You probably don’t need it, so don’t buy it.
    If an item is not factory installed as part of an options package the dealer may be able to remove it from the deal.  Consider whether you really need it, or if can you buy it elsewhere.  In the majority of cases, if the item is optional then say NO.
  2. Negotiate the whole car deal, not individual items
    Follow the advice on my website and get car prices from several dealers.  Make sure each dealer gives you a total price that includes all options and add-ons.  You should be able to find similarly equipped vehicles and then you can ask dealers to give you their best overall price (including add-ons) to win your business.