Dealers Sell Cars Below Invoice

Selling below invoice once was something a dealer would do for a special customer, close friend or relative.

Today, it's a common occurrence. And given market conditions, selling below invoice threatens to become even more prevalent.

Edmunds.com through May found almost 60 nameplates representing 21 brands selling below invoice, the wholesale price the dealer pays the auto maker.

The models, all '07s, covered a range from the every man's Mercury Milan to the avant-garde Mercedes-Benz SL.

The range included a so-what $52 below dealer cost for a Pontiac Grand Prix to a wallet opening $12,358 for a Chrysler Crossfire. In other words, the astute shopper could buy a Crossfire, which is based on the Mercedes-Benz SLK, for about $26,000.

Selling below invoice is being fueled by three trends.

The first is obvious, says Jesse Toprak, senior analyst at Edmunds.com. It's the manufacturer-to-dealer incentive that has been around for a long time.

In July, European (read primarily premium and luxury); Japanese and Korean auto makers all increased their incentive spending. But a lot of that money is not on the hood in the form of customer rebates.

In an effort to protect their highly burnished brand images and still stay competitive, foreign manufacturers are relying on dealer incentives. Indeed, nine of the 21 brands that Edmunds.com found to be selling at least one model below invoice were either Asian or European.

“We use to sell at MSRP (manufacturer suggested retail price),” says a veteran salesman who works at a Honda dealership in the Gulf States region. “Now, things have changed. We don't make as much gross profit on these cars. If you've got inventory to move, you might end up selling below invoice.”

It's a touchy subject, with dealers, sales managers and sales staffers declining to be quoted for this article.

But everyone interviewed described a market place that has become much more competitive, and one where consumers arrive at dealerships armed with information that they've garnered from automotive data websites such as Edmunds.com.

That is cited as the second reason for more below-invoice sales.

“Consumers are much more informed,” says a sales manager at a Chevrolet dealership in the Greater New Orleans area. “They're getting more information off the Internet.

“They know what's in stock and they know the manufacturer's rebate. Sometimes selling below invoice is the only way that you can be competitive. You've got to give yourself a chance.”

These days, Chevy or Dodge dealers must give themselves a chance, not against Honda or Toyota dealers, but against nearby same-brand dealers who are their direct competitors.

“It's been that way for a long time,” says the Chevrolet sales manager. “Chevrolet dealers compete against Chevrolet dealers.”

Ward's found 15,710 Chrysler, Ford and GM dealerships averaged half as many sales per store as their top Japanese rivals who have fewer than 4,000 retail outlet.

Moreover, U.S.-brand brand dealers last year had about 800,000 fewer sales among them than in 2005. It is expected that this year will see even fewer sales.

That sets up a fierce competition for sales among domestic-brands dealers who are using their hold back — sales-incentive money received from auto makers — to reduce prices even more below invoice.

That's the third trend.

Dealers using their hold back to sell below invoice is becoming common in metropolitan areas where 10 or more dealers of the same domestic brand are within a 30-minute drive of each other, Toprak says, citing Edmunds.com research.

It's a simple formula. Give up some money on the front end of the sale and try to recoup it on the back end of the sale in finance and insurance department by selling extended warranties, equipment options and accessories that can be financed.

When asked if that won't lead to dealers pushing consumers to purchase something they don't need, a dealer who owns U.S.-brand stores in the Philadelphia area, says: “I don't know. Would it be a temptation? It would be a temptation for anyone.”

This dealer talks about competitors that weren't major players in the U.S. automotive market that long ago.

It's not just Chevrolet dealerships competing with each other and it's not just the Japanese taking a big share of the market, says the dealer, pointing instead to Korean auto makers becoming a force and Chinese auto makers hoping to do the same.

“Across the globe, markets are changing,” says the dealer. “As those markets change, so does ours. It's not going to be business as usual. You have to do what you can to survive.”

Such as selling below invoice. And then there's low-balling, a new twist on the onerous bait and switch.

Some sales people are quoting shoppers absurdly below-invoice prices before they leave the store.

The point is, they know no other dealership will match the quote.

When the consumer returns, the salesperson gives any number of reasons why the price no longer exists.

“What they're trying to do is tire the consumer out,” says the New Orleans area Chevrolet sales manager.

With Asians auto makers stepping up their incentive programs, Europeans trying to keep their luxury and premium cars moving, and domestic auto makers trying to halt their market share slide, expect a greater use of below-invoice selling to move the metal.