TrueCar is a Great Site to Show You what People are Really Paying for Cars

A friend of mine saw this site and sent me the link. I’m guessing he might have seen it on Lifehacker and sent me the link. TrueCar lets you see what people are actually paying for cars. You can see invoice, MSRP and then actual dealer cost. (Invoice cost is usually not the true dealer cost. In some cases the cost can be significantly lower to the dealer than invoice.)

I did a search for Honda Accords by entering my zip code and then choosing “Honda” over on the left hand side. This brought up a list, with pictures, of all the current Honda models. I chose the Honda Accord sedan and then chose the style that I was interested in. I even chose the interior and exterior colors. Once I had finished with all the various choices, TrueCar spit out a nice graph that shows what they consider to be a great price and what’s a good price. Here is the breakdown:

Good price: $22,186 ($612 below invoice)
Great price: $21,836 ($962 below invoice)

Actual dealer cost: $21,046
Average paid: $22,273
Factory Invoice: $22,798
Sticker price: $25,075

That’s quite a spread of prices for the exact same car. This data told me a few interesting things. The most important thing is to realize that “invoice” doesn’t necessarily equal dealer cost. I think most people assume that invoice does equal dealer cost and expect to pay a bit more than that. At one time, I’d guess that invoice did mean dealer cost but as the Internet made real pricing available, most of the manufacturers created pricing schemes that basically manipulate pricing so that dealers still make money even when they sell at what customers perceive to be the dealer’s cost (invoice). I know at least one way they do this is by using dealer holdbacks. Basically this pays the dealer a kickback for each car they move. It’s not part of the invoice price but does help the dealer make money on what a customer might perceive as a break even deal for the dealer. I’m sure there are other aspects to this and since I haven’t been involved in the car business for a long time, I’d guess that there are other ways that profit is factored in to the sales price of a car.

Both the “good” and “great” prices that TrueCar list are below the factory invoice price. It’s not uncommon to see dealers advertising sales that say, “All cars offered at $300 over invoice!” This creates the illusion to the average consumer that the dealer has decided they’ll sell their inventory and only make $300 on each car. As the data above shows, that’s really not the case. If a dealer was to offer the Honda above for $300 over invoice they’d actually be making $2052 on the deal. Hardly a screaming deal. Don’t get me wrong, I think dealers should be able to make money on each car sale because they obviously have to keep the doors open and the lights on but I think it’s really important to be armed with the best information you can get in order to negotiate the best deal. TrueCar gives you that information and should help you negotiate a much better deal than paying the factory sticker price. As hard as it is to believe, there are still plenty of people that walk in the door of a car dealership and pay the price that’s on the window. In the case of the car above, that’s about $3000 more than they really needed to.