Understanding New Car Buying Terminology

Author:Jim Johnson

The new car sales process has a language all it's own, and terms are frequently used that many don't fully understand. By not understanding the meaning of some of these terms, buyers are kept in the dark and spend more than they should. So let's review some of the new car buying terminology and what it really means.

* Manufacturer’s Suggested Retail Price (MSRP) - This is found on the new car window sticker and is for many practical car buying purposes, useless to the consumer. It is, as the name says, only a "suggested" retail price. The dealer can sell that vehicle for more or less than that figure at any time.

* Optional equipment. This is also listed on the window sticker and details what options are installed on this vehicle and how much they cost at retail, if anything.

* Destination charge. Basically this is a shipping charge to get the vehicle from the manufacturer to the dealer and is not an amount that can be negotiated.

* Addendum sticker - This an added sticker that is often placed to the side of the manufacturer's sticker that lists extra options or equipment that the dealer is charging for above and beyond the MSRP or retail price. What you see on this sticker is completely negotiable and often contains highly inflated prices on items like rustproofing, fabric protectant, alarm systems, and so forth. This is an area where you need to be a savvy shopper and refuse to pay for exorbitant accessories.

* Dealer Invoice - This is the invoice to the dealer supposedly listing what the dealer actually pays for the vehicle at wholesale cost. However, it is rarely the actual cost of the vehicle itself due to other incentives listed below. If a dealer shows you his factory invoice and claims that is what he paid for the car, it's often not the case.

* Rebate - A discount given to any buyer of a particular vehicle by the manufacturer. Remember that it comes from the manufacturer, not the dealer, so it does not affect what the dealer actually paid for that vehicle., or the price that you negotiate with them.

* Dealer Incentives - This is money that the manufacturer pays the dealer for selling certain vehicles, especially those that are slow movers. This is not announced to the public, but is often listed on some car sales websites online and in Consumer Reports. It's good to keep up on these incentives as they provide more information on what a dealers is actually paying for a particular vehicle.

* Dealer Holdback - This an amount that is usually %2-3 of the MSRP that the manufacturer rebates to the dealer for selling a vehicle, no matter what price the dealer negotiates with you. Again, this is a way of the dealer making money even if he sells the vehicle to you at Dealer Invoice.

Knowing what all these terms mean and how they figure into buying a new car is important because they allow the buyer to establish the true wholesale cost instead of negotiating higher figures that allow the dealer to make unreasonable profits.

Jim Johnson writes on many consumer related topics including autos. You can find out more about new car buying tips and a how to buy a new car by visiting our Auto Review website.