Invoice Pricing - Dealer Bottom Line or Sales Propaganda?

Auto Manufacturer Advertising Can Give Consumers False Sense Of Savings

Published in Car Smart Eletter, Written By Viraf Baliwalla, Automall Network

"HYUNDAIIIIII ! - How do they do it!!" yells the actor playing a spy from a rival import automaker.

Over the last few months, Hyundai, a Korean automaker has been running an advertising campaign telling consumers that they can buy new Hyundai vehicles at the dealer's invoice price. One commercial includes spies from the rival automaker who sneak into a safe at Hyundai's offices and find that Hyundai dealers are selling vehicles at their invoice price. Another commercial portrays a dealer salesperson who inadvertently leaves the manufacturer's invoice behind while stepping away during a negotiation. While away, the prospective buyer takes a sneak peek at the invoice and is shocked to learn that the salesperson is offering to sell the vehicle to him at the dealer's cost. While both commercials were highly entertaining and well done, the message being presented was that dealers were selling new cars at cost during a special promotion period, which has since passed.

Carlos and Paula Gouveia were in urgent need for a new car when their current car was unexpectedly involved in a motor vehicle accident and written off by their insurance company. The previous year, they had used the services of Automall Network, a national auto broker, for advice and to purchase a replacement of an aging family vehicle. Automall Network had recommended they consider a Hyundai Sante Fe due to their family's needs, the 5 year warranty and overall price. It was a good recommendation and the Gouveia's were very pleased with their Sante Fe.

Now that their other vehicle was gone, they called upon Automall Network once again to negotiate the purchase of a new Hyundai Elantra. Based on the advertising, they both believed that Hyundai was selling vehicles at the dealer's cost. To their surprise, Automall Network helped them acquire a new Elantra for hundreds of dollars less than the advertised dealer invoice price.

"I didn't think it was possible to get a further discount," said Carlos, a manager in the logistics industry. "The commercials implied we were already getting the vehicle at the dealer's cost".

Here's how they did it.

"Automotive marketing is very clever" says Viraf Baliwalla, President of Automall Network. "In the case of the Hyundai ads, Hyundai was simply providing a rebate to those who were paying cash. The rebate was in the amount of the difference between MSRP and the advertised invoice price. In the auto business, there are two levels of 'invoice price', one which is shown to the public and one which the public will never see. The latter is what dealers truly pay.

"When you are negotiating the price of a car, you aren't really negotiating the price of the car" adds Baliwalla. "You're negotiating the profit the dealer will make. When there is a rebate from the manufacturer, especially one that is so cleverly masked as paying the dealer invoice price, many people simply stop negotiating because they don't perceive the dealer can go any lower. So the dealer makes their full level of profit. However, by pressing further, one could have obtained a further discount".

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