How Much Does A New Car Actually Cost?

Trying to make sense of new car prices in 2021 can sometimes be like trying to solve the cryptex that Tom Hanks was trying to decipher in The DaVinci Code. There’s a base price, options list, rebates, incentives … and what’s this about destination and delivery?

We’re here to lend a hand. This article will attempt to demystify some of the more basic elements which comprise the price of a new car. As always, we recommend everyone do their homework before ever setting foot inside a dealership, especially if this is your first rodeo when buying a car. This is not to say any particular sales staff is bent on ripping off customers, but the sheer amount of numbers and data on display during this transaction can be overwhelming. Even with the world’s most helpful salesperson sitting across the desk from you, the situation can be a bit daunting.

But take heart; after all, it’s just numbers. Get them in order and you’re likely to sort out an excellent deal to drive away in a vehicle with which you are extremely happy.

This is the broadest of questions, ranking up there with “How’d they get that in the Caramilk bar?” and “Who ate all the potato chips?”. First, one needs to understand the price shown on a car’s window sticker is the Manufacturer’s Suggested Retail Price (MSRP). This means it is the amount the company that actually designed and built the car thinks for which it should sell. New car dealerships – which, by the way, are usually their own entities and not operated by the manufacturer – are free to set their own pricing.

All of which is brief way of explaining the culture of negotiation that’s so prevalent in automobile sales. While recognizing that every business needs to make a fair profit to keep the lights on, there is a difference between MSRP and what the dealer paid the manufacturer for the vehicle (called invoice price). And, yes, if you didn’t know, the vast majority of dealerships have bought and paid for the machines which are for sale on their lot. This is one reason why they’d much rather a customer buy a vehicle from their inventory than order something not in stock.

Now knowing there is a profit margin in play with the MSRP, it is also critical for customers to research if there are any publicly advertised rebates or incentives on the model they are considering. Sometimes, in an order to move last year’s stock or to boost sales during slow times, these types of rebates will be offered by the manufacturer in an attempt to move metal. Such incentives can often be openly found on the build-and-price tools which appear on the carmaker’s website.

That’s right. Rebates and incentives of this type are supposed to be paid out by a manufacturer to the dealer and then passed on to the customer. Manufacturer’s do this in an attempt to keep assembly lines humming; even though they’ve sold last year’s stock to their dealer body, they now need to move all of these new vehicles being built to the same dealers. A monetary incentive being passed on from the manufacturer helps to lower the vehicle price in an effort to make space for new models.

Alert readers will recognize these types of rebates have exactly zero impact on the amount of profit being made at your local dealership. Here’s an example. Imagine a pickup truck bears a new car price (MSRP) of $55,000 and an invoice price of $51,000. This means the dealer has a potential profit margin of $4000. However, manufacturer incentives as shown on the brand’s website, total $6000 which reduces the asking price to $49,000. On the surface, it seems like the dealer is selling the truck for less than invoice price.

Except they aren’t. That $6000 rebate was forwarded to the dealer by the manufacturer and then passed on to the customer, leaving the dealer’s profit margin fully intact. And that’s just the rebates which are known to the general public. Behind the scenes there are often a myriad of other discounts used as bargaining chips between the dealer and manufacturer, ones of which the public will never be aware.

Racking up a new car price list isn’t the toughest task in the world. After all, every single manufacturer with new vehicles on sale in this country has a website on which all MSRPs are listed. AutoGuide has a comprehensive list as well, plus helpful comparisons for competing vehicles across different brands.

Most of these guides don’t take into account any manufacturer rebates, of course, since those discounts are often fluid and can change from month to month (or perhaps more quickly in some scenarios). It is also worth noting that new car prices frequently change each model year; even vehicles that receive no mechanical updates or styling changes often have a few hundred dollars tacked on its MSRP to account for inflation or the increased cost of doing business. Always be sure your research is based on the current model year with up-to-date pricing.

The phenomenon of ‘destination and delivery’ charges was mentioned earlier, and is worth a paragraph of explanation. In order to offset the cost of shipping vehicles across this vast nation, manufacturers use a complex calculation to determine how much to tack on the price of a new car as a separate line item for this purpose. This number is averaged out, then made fixed and equal across an entire model range, though it can vary by type of vehicle and most certainly varies depending on the manufacturer.

It is, however, the same no matter where the car is purchased. While it may seem unfair, a customer in Detroit will pay the same destination charge for their F-150 that was assembled just a few miles away compared to a buyer picking up their brand-new truck in Texas or Arizona or some other far-flung state. Note these sums are, like MSRPs, slowly inching their way up over the years; current models generally have a destination charge listed in the $2000 ballpark, compared to about half that amount not that many years ago.

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It is disingenuous – but tempting – to answer that question with the phrase “as little as possible”. After all, there are a number of intangibles that should be considered when buying a new car. Is the dealership providing a pleasant experience? Is the salesperson knowledgeable about the product they are trying to sell you? Is the service department coffee machine dispensing fresh java or week-old sludge? Ok, maybe not the last one.

While there is a nugget of truth to that tongue-in-cheek response (no one likes to get ripped off or pay more than strictly necessary for a product), there’s also something to be said for dealing with a sales rep who has listened to your needs and helped steer you towards a car that will make you happy. Walking out in a total huff over the sake of $100 – a sum which will likely be financed over five or six years – in favor of a competing store that has failed to treat you well or displayed an ignorance of the features in the car they are selling is generally a bad idea. There are cases in which good service is worth a financial premium, and it can be argued that buying a new car is definitely one of those instances.

There are some other bits of information customers can use to their advantage. For example, it’s worth learning how long a car has been sitting on a dealer’s lot. Savvy shoppers can examine a car’s build sticker, which is generally found on the driver’s door jamb, to at least find out when the thing was built. If it is a new 2021 model that bears a build tag of June 2020, there’s a fair chance the vehicle has been loitering the lot for a while. Use this knowledge to your advantage since new car dealers like to have regular turnover of their inventory. Some jurisdictions need to place an inspection sticker on the windshield, one which will generally show an expiration date two or three years in the future. If the expiration month doesn’t align with the current calendar month, the inspection was probably completed more than 30 days ago, giving further clues as to when the car was shipped to the dealer lot.