Car Buying Terms

Here are all the car buying terms and definitions you will ever need to know...

Ad Unit Cars: Also known as “Advertising Units”. You’ll see these cars advertised in your newspapers and they will say something like: “Only 3 available at this price”. These are for real and they are there to draw you into the dealership so they can up-sell you to something more expensive and profitable for the dealer. They are loss leaders.

Here's the full story on ad unit cars.

Allotment: Also referred to as “Dealer Allocation”. This is a system the manufacturers use to allot cars and trucks to their car dealerships.

Asking Price: If you’re looking in the classified ads for a used car and you see the term “asking $5000.00” then you can assume that $5000.00 is a starting point to be used when negotiating a final selling price. There can be a lot more going on here too. If the seller is I call a “Don’t Wanter” then their final selling price could end up being much lower than the “asking price”. If they specifically say “$5000.00 firm” then you can expect that they aren’t going to want to negotiate at all.

Book: This is a term given to determine the value of a used car as seen in the Kelley Blue Book, NADA guide and others. Its usually broken into categories of retail, trade-in and wholesale value. Also known as “Book Value”.

Carryover Allowance: Near the end of the year when the car dealers get the next years models, they will usually discount last years inventory of new vehicles. This is known as a “Carryover Allowance”. This can be a good way to buy a new vehicle at a decent price. The downside is that your vehicle will be last years model, which may not matter as far as value, unless the new car has gone through a major design change.

Churn & Earn: When new car dealers buy a number of in-demand vehicles from the manufacturer they usually must also order a couple low-demand vehicles too. If this is the type of vehicle that you want then you can get it at a good price because the dealers will be eager to just “flip” this vehicle or “churn & earn”. Maybe even selling it without a profit. These vehicles are sometimes used as loss leaders in their advertising to draw potential buyers in.

Commission: This is the money that the salesperson gets for selling a vehicle. The more vehicles (“units”) they sell in a month, the higher the commission rises too.

Customer Incentive: Also known as “Rebate”. These are incentives offered by the manufacturers. They are usually used on low-demand vehicles, high supply vehicles or they are offered when car sales in general are low. Its worth watching and waiting for deals like this.

Dealer Holdback: Also known as “Holdback” or “Giveback”. Invoice Price is the price the car manufacturers sell their cars to the dealer for. Even if a dealer sells their car to you for $1.00 over Invoice Price, they will still make from 2% to 5% on the car because of the billing system the manufacturers use. Incorporated into that billing system is a fee that is given back to the dealers known as Holdback or Dealer Holdback. Obviously dealers don’t like to reveal the fact that Holdback even exists so you will need to find that out for yourself.

Dealer Invoice Price: Also known as “Invoice” or “Tissue”. This is the price the dealer pays the manufacturer for a car.

Destination Charge: Also known as “Delivery Charge”. This is the charge dealers get hit with for having their cars shipped from the factory to the dealership. All dealers get charged the same whether their car order is shipped ten mile from the factory or two thousand miles.

Incentives: This is any price reduction offered to car buyers from the car manufacturer to get them to buy a new car. These Incentives are also used to motivate the sales force to sell more cars.

Manufacturer's Cost: Also known as the “Auto Maker Costs”. Many things need to be factored into the manufacturers cost of a vehicle. You’ve got the cost of the property, building, machinery, maintenance and repairs of the machinery, payroll, insurance, etc, etc. So its pretty difficult to determine the exact cost of a particular car.

Manufacturer to Dealer Incentive: Also known as “Dealer Incentive” or “Factory to Dealer Incentive”. These are incentives the manufacturers offer the dealers when they build too many of a certain vehicle. The dealers are supposed to pass on these incentives to the buyers but they like to keep these for themselves instead. Its up to you to find out when these are happening. Its worth it to find out about these because they can often amount to thousands of dollars in savings.

Market Prices: This represents the prices for a specific model and/or geographic area based on supply and demand. An over simplified example might be: A certain four wheel drive vehicle sells for $20,000 in area ‘A’ but it might sell for a premium of $2000.00 (or whatever) in area ‘B’, again, based upon supply and demand. These Market Prices change over time too.

Minimum Deal: This is a sale where the profit is so small that the dealer will pay a flat fee to the salesperson instead. “Ad Unit” sales are usually like this because they are loss leaders for the dealers.

MSRP: Also known as “Sticker Price”, “Munroney”, “List Price”, “Sticker” or “Retail Price”. “Manufacturers Suggested Retail Price” is the price the manufacturer is suggesting the vehicle be sold for. You can see it on a sticker on the side window. “Munroney” was the Senator that introduced this law. Ever notice how retailers will show the MSRP for just about anything and then they will mark it way down. The ad might say “Widgets-MSRP $29.95. Our special sales price is only $9.95”. The point is that you don’t want to negotiate from the MSRP because its just a starting point and only a moron would pay full retail for anything!

Non-Commissioned Sales: Personally I would avoid these types of places. Somehow and someway these sales people are getting some type of compensation beyond their salary. The point is that you go in there thinking that you won’t be “sold” which is great for the sales person because you will also be more receptive and open. Be aware.

Option Packages: These are merely a package of options that the manufacturers will put together at a reduced price. For example: A “Sport Package” might include special wheels, pin striping, special gauges, etc. If you ordered all those options separately then you would pay significantly more. These Option Packages also streamline the manufacturing process too.

Retail: May also be known as the “List Price”. This is the price you might pay if you didn’t know anything about how to negotiate when buying a car.

Special Circumstances Dealer Incentives: These are incentives offered to a new car dealership to get started and establish a base of new customers.

Wholesale: Also known as “Wholesale Value” or “Actual Cash Value”. This is what a used car can sell for at a used car auction. When you trade in your used car you must know that the dealers already know what they can dump it for at an auction. If they offer you substantially more than wholesale then you also need to be aware that they will get that money from you some other way.