by Grant Yoxon
(This popular article is seriously dated, but the principles still apply. Please note some links may not work – Ed.)
With computers common in many homes, Canadians are increasingly turning to the Internet to research a new-car purchase before going to their local dealer to buy.
Online, they find an incredible wealth of information about new vehicles — specifications and options for every make and model produced, thousands of car reviews, and advice on how to negotiate a good deal.
But Canadians looking for pricing information are coming up short — at least compared to our American neighbours.
Dozens of Web sites list U.S. dealer invoice prices, the price that American car dealers pay manufacturers. Dealer incentives and holdbacks — a percentage manufacturers rebate to dealers to cover the cost of financing inventory — are also freely listed. And with consumer rebates and interest rate reductions publicly available, American consumers have a significant advantage over Canadians in negotiating the best deal on a new car.
Canadian automotive Web sites such as Carclick, TDAutoExplorer and Autonet.ca, and publications such as the Autopinion, list only the manufacturer’s suggested retail price (MSRP). That’s the price shoppers see on the sticker attached to the window of a new car in a dealer’s showroom or lot.
Because new car prices are generally negotiable, it is rare that consumers will pay this price. So what are Canadians to do? Because of the difference in the value of the Canadian and American dollar, and other factors, U.S. pricing information is practically useless for Canadian car shoppers.
Greg Wilson, who publishes Wilson’s Canadian New Car Price Guide, suggests consumers use the American information to estimate the dealer invoice price based on the Canadian MSRP.
“I always suggest people buy a copy of Consumer Reports,” he said. “Some of their auto issues include the dealer markup as a percentage on each vehicle. It may be slightly different, but it would be almost identical and, as a rule, markup on vehicles is in a range of nine to 20 per cent.”
“Economy cars,” he continued, “tend to be a lower markup, luxury cars and sport-utes tend to be higher, but in the neighbourhood of 15 per cent on average, plus they get that dealer holdback at a later date.”
Wilson’s Guide, published quarterly, lists MSRPs for all vehicles sold in Canada. It is not on newsstands but is distributed primarily through libraries.
Mr. Wilson also writes new car profiles for the Canadian Automobile Association’s carbuyer’s annual, Autopinion.
For consumers with Internet access, a more precise estimate of the dealer markup can be calculated using the MSRP and dealer invoice prices provided by automotive sites such as Edmunds and then applying the ratio to the Canadian MSRP.
While not available on the Internet, dealer invoice prices are available in Canada, but at a price.
For $25 the Automobile Protection Association will provide consumers with the dealer invoice price for any vehicle available in Canada.
“More important, they will also find out if there are any rebates, whether public or hidden, and the dealer holdback if one is available,” says Mohamed Boughama, director of the APA’s Toronto Office.
Members of the APA can get two dealer invoices each year as part of their annual membership. In addition APA members can buy a new car through participating dealers at a fixed markup over the dealer’s cost, dealer rebates and holdback included, if they are willing to take possession of the car in Montreal or Toronto.
The APA gets its prices from the dealers who participate in this program. This is also how companies such as Edmunds and Pace in the United States get their dealer invoice information.
Pace Publications produces monthly price guides for cars, trucks and motorcycles and publishes dealer invoice prices on it’s Carprice Web site. Pace gets its information from a network it has developed over the 25 years it has been publishing dealer invoice prices.
Kelly Kuster, Pace Publications’ editor, explains: “You have to have certain ins to get the information, certain friends. It’s supposed to be kept confidential. The manufacturers keep it confidential, but there are many sources throughout the Unites States where you can get that information.”
Pace competes with a variety of information sellers in the United States. Competition on the Internet is so fierce that dealer invoice prices are now published free.
Such is not the case in Canada, presumably only because no one has developed the necessary network of information suppliers.
“If we could find the source to do invoices, there wouldn’t be a hesitation at all,” says Ms. Kuster about publishing Canadian dealer invoice prices. “That is something we’re always working on. If we can find the sources of information and we can cross-reference things, you can bet our Web site would expand in a heartbeat.”
Both Ms. Kuster and Mr. Wilson caution consumers about placing too much emphasis on the invoice price.
“There are some things that are not included in the dealer invoice cost,” says Mr. Wilson. “Sometimes the dealer gets a dealer rebate, usually at the end of the model year or on a slow selling model, and it could amount to $500 or even $1000 a car.”
Such dealer incentives can vary tremendously from region to region and are often short-term, making them difficult to determine, even in the U.S. where such information is more readily available.
“There is no way we can keep track of regional changes,” says Ms. Kuster. “Regional (incentives) change on a weekly basis.”
As well, domestic manufacturers are more likely to offer incentives to their dealers than Japanese manufacturers, although both are known to use the practice. Volume discounts are usually offered on the big sellers, which are the manufacturers’ bread and butter, while incentives may be used to move slow sellers.
Don’t expect dealer incentives on vehicles which are in high demand, such as large sport utility vehicles or the new Beetle — or in the Spring. Dealer incentives are designed to clear lots for new inventory.
When manufacturers push consumer rebates and low interest rates, or when dealers advertise vehicles at $100, $50 or even $1 over dealer cost, a dealer rebate or incentive is probably behind such a great deal.
Consumers should also consider the holdback when determining a dealer’s cost. Dealers pay for their cars when they are ordered, not when sold. Since car dealerships must have inventory on hand, they must borrow from the bank to pay for it.
The manufacturer helps the dealer finance this inventory through the holdback, a fixed percentage — usually two to four per cent — of the MSRP or invoice that is paid to the dealer. This is invisible to consumers and, if a vehicle sells quickly, guarantees the dealer a profit, even if the vehicle is sold at cost.
The value of the holdback to the dealer and its value to consumers as a bargaining chip declines the longer the vehicle is on the lot and the dealer pays interest on the loan. Even so, consumers should factor in the holdback in making an offer on a new car.
“A dealer has taken out a loan to buy the vehicles on his lot and is paying interest on them and the longer they sit there, the more it costs him,” Greg Wilson says. “So if a vehicle has been sitting there a long time, he may be willing to let that vehicle go at cost or even less.”
Ms. Kuster agrees. “We tell customers to start with the absolute rock bottom price, because you know they’re going to work you up.”
Buying a car is one of the few shopping experiences where price is negotiable and negotiating a price is the norm. Only real estate shares similar attributes. While bargaining does occur with other purchases, no one would think of asking a clothing retailer or a furniture store what it paid for its products.
Greg Wilson says, “The automotive retailing industry is one of the only industries where consumers expect to know what the retailer paid for his product, and in a way I can sympathize with auto dealers, because I wouldn’t expect to go into Sears and say, ‘How much did you pay for that refrigerator? I want it for $100 more.’ ”
Yet increasingly this is the case in buying a new car. With the average price of a new car inching up toward $30,000, no wonder consumers want to make sure they get the best deal. And when it comes to dealing for a new car, information is power. It is the only way to make sure the deal you make is the best deal possible.