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Incentives can reduce cost of car to dealer

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Question: I saw your article about what dealers actually pay for cars. You're right that the "dealer invoice" is not what the dealer really pays. A holdback, incentives and sometimes year end money further reduce the cost of the car to the dealer. It took a bit of digging to find my old GM accounting manual (1985 edition but still current when I helped run a GM store in 1991), which lists the invoice codes.

There's a lot of interesting stuff on the invoice, but what is probably of greatest interest is found (if the format is still the same as it was a few years ago) in the lower right corner:ACCT 231 is the actual amount billed to the dealer for the car itself.

ACCT 261 is the "holdback amount," which the dealer gets after the car is reported sold to the factory. This is usually 2 percent to 4 percent of the total invoice.

ACCT 65A is money the dealer pays into the advertising fund. This goes to pay for dealer group ads on radio and TV.

ACCT 310 is the amount the dealer's floor-planner (finance company) is billed for the car. This includes finance charges the dealer will have to pay if the car hangs around the lot too long. Usually, this is the figure dealers will claim as their "invoice price."

Let me illustrate with a real example. I have the wholesale invoice for my 1991 Pontiac Sunbird. Believe it or not, the sticker price was $12,500 (fairly well loaded with a V6, which now has over 107,000 miles and no significant problems!). The actual invoice (ACCT 231) was $10,737.99. The holdback (ACCT 261) was $389.10, or about 3.6 percent. The dealer was billed $120.45 for the ad account (ACCT 65A), and the "invoice" amount (ACCT 310) came to $11,247.54.

So if the dealer sold the car at, say, $100 over "invoice" ($11,347.54), he'd make approximately $1,000 once he got the holdback.

Of course, there are also other published and unpublished monies back. Besides the advertised customer rebates, there can also be dealer incentives and regional incentives, which are monies paid directly to the dealer for each car sold that he may or may not decide to pass on to the customer. These are closely guarded secrets and can change daily.

Hope this information is useful. - Jack

TOM: Thanks for your letter, Jack. You should know that there are many dealers who are angry we're even discussing this issue. One paper - with very little backbone, I might add - even dropped our column after a dealer complained.

RAY: And we just want to say good riddance to them. We don't need the stinkin' New York Times, anyway! Little backwater fish-wrap!

TOM: Actually, there was a great deal of interest in this topic. We heard from many dealers and ex-dealers. Most confirmed that our estimate of what goes into a true dealer cost is about right. But many raised other interesting issues.

RAY: Like why SHOULD people know what a dealer pays for a car? They don't know what the electronics store pays for the TV set they buy. That's a good question, isn't it?

RAY: And did we know that a lot of dealer profit gets "earned" after the price of the car is negotiated?

TOM: We'll print more of these letters in the coming weeks and try to represent the range of responses we got from dealers and former dealers. Stay tuned.