Does Selling A Car At Dealer Invoice Mean The Salesperson Makes Nothing?

Getting a new car with invoice pricing may indeed be a good deal, but that amount often doesn't reflect the dealer's actual cost for the vehicle. My initial reaction to these invoice deals when I first started selling cars was frustration, because they reduced the dealership's front-end profit, on which some of my pay was based. At least I walked away with a minimum commission for my efforts, which is how many car salesperson positions are structured.

However, I came to appreciate the money I also made from back-end profits tied to financing and add-ons (warranties and protection plans). So, an at-invoice deal isn't necessarily a bad thing for the salesperson; it just depends on how the dealer structures their compensation.

Buyers should also recognize that automakers throw all sorts of money at dealers, further reducing a car's true cost. I'll explain how holdback, marketing support, and other incentives affect the calculation. Dealer fees, which can be fake or legit, can also be involved. You may not get a better deal by knowing things, but at least you'll have an understanding of what happens behind the desk.

As mentioned, no matter how low the sales manager priced the deal, I walked away with a minimum from each transaction (in my case, $100). That wasn't a terrible amount if I only spent an hour or two with the customer, but the numbers could turn against me if things went longer. In some dealerships, these "mini-commissions" could only pay $50, which could make a career in fast food look appealing. Where I worked, invoice deals weren't frequent, but they could be used with a particularly hard-negotiating client or when there was urgency to move inventory, such as meeting a sales goal or for a car that had been on the lot for too long.

Where at-invoice transactions were particularly useful was in helping me meet monthly or quarterly sales goals. I was incentivized based on sales tiers — for example, hitting 20 units in a month would generate a retroactive bonus for every car sold that period. If it were the last day of the sales month, and I had 19 sales booked, hitting that 20th sale could mean an extra $500 to $2,000 in my pocket. The bonus amounts fluctuated, but they usually hovered between $25 and $50 per car, sometimes reaching $100.

Minimum commissions weren't thrilling, but these at-invoice purchases generated other commissions that easily exceeded that $100. If the dealer facilitated financing, the company received a percentage of the finance charges or a flat rate, and I received a portion of that amount. Similarly, I would get a share of the profits from any extended warranty or protection plan (for wheels, fabric, or paint). I'm sharing my experiences, but not every dealership structures salesperson pay this way.

An invoice reflects what the manufacturer bills the dealer for the vehicle, but that bottom-line number may not represent the final cost. Most manufacturers offer a holdback, which is a small percentage (typically 1%–3%) of the manufacturer's suggested retail price (MSRP) for the vehicle (base or total), which is credited back to the dealer after the sale. So, a 3% holdback on a vehicle with a $40,000 starting price yields a $1,200 hidden profit for the dealer. An invoice may cite this holdback amount, but this information can be obscured with terms like H/B or HB.

Most new-car dealers finance inventory rather than pay the manufacturer when the car is delivered to the lot – a practice called floor planning. According to industry data provided by Harney Partners, this averages at about $7.90 per day per vehicle, but it varies by manufacturer. The manufacturer gets paid when the car is sold, and the floorplan lender collects its interest. Automakers frequently provide a floorplan allowance to offset these expenses, particularly if the dealer has been encouraged to bring on extra inventory.

Another reduction to what a dealer pays for a car comes in the form of marketing assistance, which may be called advertising support or something similar. Basically, the manufacturer gives the dealer money to help market the vehicle. As covered earlier, additional profits come from dealer-arranged financing and any other extras (such as extended warranties) that can be added to the deal at the finance office. Processing and handling charges also pad the profit, including in states with the highest dealer fees.