It's very simple -- the dealer buys the car from the factory, i.e. manufacturer, for a certain amount of money, then has the manufacture dictate what the MSRP is. The MSRP stands for "Manufacturer's Suggested Retail Price." There typically is anywhere from a 6% to 8% profit margin built in for the dealer. Obviously, it is a rare occurrence to pay full MSRP for a new car. Although, this does occur. The price that the dealer buys the car for is referred to as invoice price. You can go to a number of websites such as Autobytel.com, Autoweb.com, CarSmart.com, NADAGuides.com, Edmunds.com, and Cars.com to find out the dealer's invoice price on the new car. The problem with these websites is that the invoice price listed is not really the dealers "true cost." The real breakdown is as follows.

MSRP (new car sticker price)
- Invoice Price
- Hold-Back
= True Actual Dealer Cost

Hold-Back is a certain percentage of either the MSRP price or the dealer invoice price. It is very difficult to find what this exactly is. If you go to Edmunds.com and navigate to the fees or incentives menu, you can find a link that will list every manufacturer's percentage of hold-back and how they calculate it. The dealer, if they sell the car to you for MSRP, are not making only the 6%-8% profit margin, they are also making another 2%-3% or as much as 5% hold-back. A lot of dealers say that they will not negotiate the hold-back. But if you fight hard enough, they will. This is typically how a dealer makes profit on a new car. However, I do need to tell you about another way that the dealer makes money on a new car.

Many times throughout the year, manufacturers will come up with incentives that go directly to the dealers when they sell a certain make and model. For example, right now if you buy a Mercedes-Benz C-class, the Mercedes-Benz factory is giving the dealers a $2,500 incentive for each C-Class they sell. So even if the Mercedes dealer sold you the car for invoice (hold-back), the dealer would still be making $2,500 from the factory. These "secret" factory incentives do not have to be disclosed by the selling dealer. For many years, before the information highway was born, dealers were laughing all the way to the bank. This is not the case now because anyone can find this information; they just need to know how to correctly allocate their resources. You can go to Edmunds.com again for this and click on "new cars" and then "incentives and rebates." This will show a list of all the secret factory to dealer incentive programs. Edmunds.com calls this "market support."

In closing, be sure to research what the dealer invoice price is, find out what the hold-back is and find out if there are any secret factory-to-dealer incentives. Once you know all this information, you can tally up all these numbers to find out the dealer's true actual cost on the new car you want.