Wouldn't it be a relief if new-car prices were no more negotiable than a can of tuna at the supermarket? Unfortunately, that's not the nature of the game - and in many ways it is a game. Unless you've been trained, don't expect to beat the dealer; he or she is a pro, after all. But if you do a little homework, you can arrive at a fair deal for both yourself and the dealer.

Dealer Incentives

The "dealer cost" figures shown on this website are known in the trade as "dealer invoice" prices. But in reality, dealers usually purchase a car for less than dealer invoice. This is because automakers frequently provide so-called dealer incentives.

All domestic automakers and some foreign automakers give their dealers a "holdback," or a refund, of typically 1 to 3% of the invoice price after the car is sold. Automakers often give factory-to-dealer rebates as well. The dealers can either keep the rebates or pass them along to the customer to sweeten a deal. These and other dealer incentives explain why a dealer can sell a car at cost and still make a profit.

Knowing the dealer's true cost for a car - that is, the invoice price minus holdbacks and factory-to-dealer rebates - does not automatically guarantee that you will get the deal of the century. But it is an effective weapon to have as part of your negotiating arsenal. Not only will it give you a good indication of how much profit a dealer is trying to make on each sale, but it will also serve as an excellent point from which to begin negotiating.

Note that dealer incentives are passed from the manufacturer to the dealer in order to help the dealer sell the car. It is up to the dealer as to how they spend this assistive money in order to accomplish this. As well, the longer a vehicle is on the lot the greater the reduction of the holdback. Typically, if the dealer has had the car for three or more months, none of the holdback money remains as profit.

Customer Rebates

Cash-back rebates have become as much a part of the new-car sales routine as tire-kicking and test drives - and they're not "funny money." Cash-back rebates, as well as zero-percent or deeply discounted loans and subsidized leases, are free money from the automakers ... money you'd otherwise have to pay for a new car or truck. However, automakers use incentives to reduce inventories, and you're not likely to find fat rebates on brand-new models or on any other vehicles creating a marketplace buzz.

The Usual Consumer Incentives

• Factory-to-customer rebates. Cash rebates are money from the automaker, not the dealer. A factory-to-customer rebate is a sort of price cut, but one that comes in addition to any price cut you negotiate with the dealer. A rebate doesn't change the price the dealer pays for the vehicle. So don't be afraid to dicker even on vehicles with hefty factory-to-customer rebates. In theory, after you buy the car or truck the manufacturer mails you a rebate check. The dealer doesn't touch the money. In practice, most buyers use the rebate as part of their down payment and never see the cash, electing instead to turn it over to the dealer. Indeed, it's possible to buy a new car or truck with no cash out of your pocket if the factory rebate is big enough.
• Discounted loans. Zero-percent or deeply discounted loans can save a buyer thousands of dollars over the life of a loan - truly, free money for those who meet the stringent qualifications. This is often referred to as “top-tier” financing, and if you are budgeting for your car under the assumption that you will qualify, you should know your credit rating before you start the buying process. But discounted loans are often offered in lieu of a rebate. So which should you choose if you're offered a choice between a cash rebate or cheap financing? It's a moot point for many buyers who need the rebate to help make a down payment. But if you have enough cash for the down payment you'll often be ahead by taking the financing.
• Subsidized leases. With a subvented lease the manufacturer is effectively increasing the automobile's residual value for payment calculations. Most all vehicles can be leased at any time; whether or not the lease is a good deal should be evaluated, so see our buying advice on leases for more information; each week we publish lease incentives on IntelliChoice.com. The availability of subsidized leases varies, though often those you see advertised are subvented.