What does the invoice price mean?
How is it different than MSRP?
Even though it may say “Chevrolet” or “Honda” on a dealership’s billboard, dealers still have to buy cars from the automakers; this transaction is where invoice and manufacturer suggested retail price come into play.
Simply put, there’s a price that the dealership pays for a car, called invoice price, and then there’s the price that automakers want the car sold at, called the MSRP. You can find these numbers listed on Cars.com in our Research section. Dealerships will try to sell a car at the greatest profit to them — they’re a business, what do you expect? And that means selling as close to the MSRP as possible, though you can usually score a price lower than the MSRP.
Although we can say it as simply as possible, invoice and MSRP prices simply aren’t that simple. The Cars.com article “Getting the Best Deal: Purchase Price
and Trade-Ins” explains why:
“For most vehicle makes, the published invoice price is not the true dealer cost because of dealer holdback. Holdback is a portion of a car's sales price (typically 2 percent to 3 percent of either the invoice price or MSRP) that an automaker returns to a dealer, usually on a quarterly basis. It's a way of boosting the dealer's cash flow and helps the dealer keep his lights on.”
More and more consumers are entering dealership lots armed with an invoice price and MSRP in hand. Although these are important numbers to know, they shouldn’t be relied on solely during negotiations as the price you expect to pay. A good starting price — and a more realistic number for negotiations — is the Cars.com Smart Target Price, which is calculated considering invoice price and MSRP among many other factors; like vehicle availability and demand. On most cars; the Smart Target Price lies somewhere between invoice and MSRP.