Glossary

Acquisition Fee

A fee that is typically associated with leasing, and refers to a charge from the lender or leasing company to cover the administrative costs of setting up the lease [e.g., credit check, verifying information]. It may also be called an origination fee, bank fee, or administrative fee. The fee is negotiable.

APR (Annual Percentage Rate)

The true cost of borrowing, expressed as a yearly interest rate.

Black Book® www.blackbook.com

Provides values, forecasts, and market insights for new and used vehicles, including cars, light trucks, and collectible vehicles produced since 1946, motorcycles, ATVs, snowmobiles, personal watercraft, and heavy duty commercial trucks and trailers. Other products include vehicle identification number (VIN) decoding software, projected residual values, inventory management tools, and lead generation applications. They offer subscription-based services exclusively to businesses like dealerships, lenders, and insurers.

Black Book has a partnership with the National Automobile Dealer Association (NADA), and their data is often used by NADA members and in NADA publications. Black Book's valuation methodology is partially informed by data and insights from NADA. Published by National Auto Research, which is a division of Hearst Communications.

Data sources:

Extensive wholesale transaction data: Black Book utilizes a massive database of actual wholesale auction transactions and dealer purchases, providing insight into real-world market trends.
Vehicle specifications: Details like year, make, model, trim level, options, and mileage are meticulously considered.
Vehicle condition: Black Book factors in the reported condition of the vehicle(excellent, good, fair, poor) to adjust the valuation accordingly.
Geographic adjustments: Regional variations in supply, demand, and pricing across the US are taken into account.

Valuation process:

Sophisticated algorithms: Black Book employs complex algorithms to analyze the vast amount of data and identify patterns that influence vehicle values.
Expert analysis: A team of automotive analysts continuously evaluate and refine the algorithms, ensuring their accuracy and reflecting market fluctuations.

Output:

Wholesale Black Book Value: This represents the typical price a dealer would pay for a vehicle at an auction, used primarily for trade-in estimates.
Adjusted Retail Value: Dealerships utilize this value, but may adjust it based on market conditions, specific vehicle supply and demand, and other factors.

CPO (Certified Pre-Owned)

A late model used car that's been inspected and comes with a warranty. Typically only sold by franchised dealers authorized to sell the vehicle when new.

Dealer Markup

An amount the dealer may add to the invoice price (the price they pay the manufacturer).

Down Payment

The cash a buyer pays toward the total price of the vehicle. The larger your down payment, the less money you need to borrow to purchase the vehicle. Keep in mind, you can apply the trade-in value of your current car and rebates toward your down payment.

Destination Fee

This fee is what the manufacturer charges the dealership to transport the car from the factory to the dealer’s lot. This fee is listed on the window sticker and dealers typically pass this fee directly on to the consumer.

Dealer Holdback

A dealer holdback, also known as a dealer reserve, is a cash incentive provided by a car manufacturer to a dealership for each new car they sell. It's essentially a hidden discount that acts as a buffer for the dealership and improves their overall profit margin. Here's how it works:

Amount: The holdback amount is typically calculated as a percentage of the vehicle's MSRP, ranging from 0% to 3%. The specific percentage varies depending on the manufacturer, model, and market conditions.
Payment: The manufacturer doesn't include the holdback in the invoice price the dealership pays upfront. Instead, they reimburse the dealership the holdback amount after the car is sold.

Disposition Fee

A fee charged by dealers or finance companies on lease returns to cover administrative and other costs associated with returning the vehicle to inventory.

Documentation Fee

A fee charged by some dealers under a variety of circumstances to cover the cost of processing paperwork internally or with external agencies.

Four Square Sales Method

The Four Square car sales method is a tactic used by some car salespeople during negotiation. It's important to be aware of it so you can be a more informed buyer. The salesperson presents a worksheet with four squares, with each square representing a different cost factor:

Trade-in value of your old car
Selling price of the new car
Down payment amount
Monthly payment amount

The salesperson might start with a high selling price and a low trade-in value. They'll then adjust the numbers in the squares to try to get you to focus on a monthly payment that seems affordable, rather than the total cost of the car.

It's a tactic to distract you from the total cost of the car.
Focus on the overall deal, including the out-the-door price (including taxes and fees).
Do your research beforehand according to Chapters 1-5, and consider presenting your own Four Square offer using the Deal Tracker worksheet referenced in the guide for editing online and downloading for print.

MPGe

Miles Per Gallon equivalent is the unit of measure for a hybrid or electric car’s energy

consumption level to compare with gas-powered vehicles’ fuel consumption. Learn

more at: www.kbb.com/car-advice/what-is-mpge and www.afdc.energy.gov.

MSRP

MSRP stands for Manufacturer's Suggested Retail Price. It's essentially the recommended selling price that a car manufacturer suggests to dealerships. You'll often see it referred to as the sticker price or list price as well. Key points:

Recommendation, not a fixed price: While it's called "suggested" retail price, dealerships aren't obligated to sell vehicles at the exact MSRP. They have some flexibility to negotiate on the price, potentially offering discounts or adding markups depending on factors like market demand, inventory levels, and dealership promotions.
Transparency & comparison: The MSRP is displayed on a window sticker attached to new cars on the dealership lot. This sticker also details other factors like options and features included in the specific vehicle, helping you compare different models and configurations.
Not the final price: Remember, the MSRP doesn't include additional costs like destination fees, taxes, and dealer documentation fees.

Why is MSRP important?

Starting point for negotiation: Knowing the MSRP gives you a baseline for negotiating the actual price with the dealership. You can research typical discounts and market trends to get a better idea of a fair price range.
Comparison shopping: It allows you to compare prices between different dealerships and car models more easily, as it's a standardized reference point.

Dealer Holdbacks

Purpose: The holdback serves several purposes for dealerships:

Profit margin: It helps dealerships maintain a healthy profit margin even if they have to negotiate the final sale price below the MSRP. The average dealer holdback is 3% of MSRP.
Marketing & Sales Expenses: It can be used to cover expenses like advertising, promotions, and salesperson commissions.
Inventory Management: It provides some financial flexibility for dealerships to manage their inventory and potentially offer discounts during slow sales periods.

Overall: Understanding dealer holdbacks can be helpful for car buyers, but it's important to remember:

They are one factor among many when negotiating the price of a car.
Focusing primarily on the holdback is unlikely to result in the best deal.
Researching fair market value, negotiating effectively, and comparing offers from different dealerships are still crucial strategies for getting the best possible price on your new car.

Transparency and Consumer Impact:

Non-transparent: While dealerships know the holdback amount, it's typically not disclosed to customers. This lack of transparency can make it challenging for consumers to fully understand the true cost of the car and negotiate effectively.
Limited impact on final price: While the holdback exists, it usually represents a relatively small portion of the overall car price. Therefore, focusing solely on negotiating the holdback might not yield significant savings compared to negotiating the overall sale price.
Learn more here: www.edmunds.com/car-buying/dealer-holdback.

Dealer Incentives

Rebates, discounts, or special offers from the manufacturers to the dealers, who have the option to pass on to consumers.

Dealer Invoice

The vehicle invoice price, also known as the dealer cost, is the amount a dealership pays the manufacturer for a specific car. While not legally obligated to do so, dealerships often use the invoice price as a starting point for negotiations with customers, of course aiming to sell above the invoice price to make a profit.

It's a bit strange that asking for the invoice price has become so common and accepted—you never ask the seller of other major purchase items like homes and appliances what their costs are—its value has in any case become somewhat diluted.

While it's an important term, it's crucial to understand how it works and its limitations. It typically includes the base price of the car, but may not include additional costs like destination charges, manufacturer incentives, or dealer add-ons and markups. Also, manufacturers usually provide additional discounts or rebates to dealerships based on sales volume or other factors.

Destination Fee

A non-negotiable fee charged by the manfacturer for transporting cars to the dealership. It appears on the window sticker, and is in addition to the MSRP.

Disposition Fee

So, while the MSRP isn't necessarily the final price you'll pay, it's an important piece of information for informed car buying. Do your research, negotiate effectively, and don't be afraid to shop around to find the best deal!

NMVTIS

The National Motor Vehicle Title Information System is a federal system that provides consumers with information about a vehicle's condition and history. It is designed to prevent stolen vehicles from being used in interstate commerce, protect consumers from title fraud, and protect consumers from purchasing unsafe salvage vehicles. NMVTIS allows the titling agency to instantly and reliably verify the information on the paper title with the electronic data from the state that issued the title.

Out-the-Door Price

The total cost, including all taxes, fees, and the car itself. This is the number that matters, so keep your eyes peeled!

Salvage Title

A salvage title is a special designation added to a vehicle's title that indicates it has been severely damaged and deemed a total loss by an insurance company. This typically happens when the repair costs would exceed the car's actual value. For more information, check out these websites:

Vehicle Auctions

A vehicle auction is a marketplace where vehicles of various makes, models, and conditions are sold to the highest bidder. Essentially, it's a competitive bidding process where interested buyers raise their bids until one emerges victorious. Here's a breakdown of the key aspects of vehicle auctions:

Types of Vehicle Auctions

Dealer-only auctions: These are typically closed to the public and offer late-model trade-ins, repossessed vehicles, and fleet cars at wholesale prices. Access is reserved for licensed car dealers.
Public auctions: These are open to anyone and offer a wider variety of vehicles, including used cars, salvage vehicles, and even motorcycles or boats.
Online auctions: This increasingly popular format allows bidding remotely, often with detailed vehicle descriptions and inspection reports available.

How Vehicle Auctions Work

Vehicles are inspected and appraised before the auction. This information, including repair history and accident reports, is often made available to potential buyers.
During the auction, an auctioneer calls out bids starting at a reserve price or minimum acceptable amount. Bidders can raise their bids verbally, electronically, or using paddles.
The vehicle goes to the highest bidder who meets or exceeds the reserve price. Payment and paperwork finalization follow the sale.

Glossary

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