Automotive Terms: Alphabetical Glossary

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APR: Annual Percentage Rate is the cost of credit expressed as a yearly rate. Also known as the interest rate.

Cash back: A type of financial incentive that a manufacturer or a dealer offers to the car buyer as a reward for signing up for a specific initiative (like financing). This incentive is usually taxable, so be sure to take that into account.

Dealer cost report: Invoice price reports are documents offered by companies like Unhaggle and TrueCar to help consumers make an informed decision when purchasing a new car. The free invoice report provided by Unhaggle shows the invoice cost, average price and all applicable fees for every vehicle configuration sold in Canada. Learn more about it here.

Dealer holdback: An amount the manufacturer pays to the dealer for each new vehicle sold – normally calculated as a percentage of the dealer invoice price or MSRP, including or excluding options. The purpose of these payments is to cover interest charges and marketing expenses that a dealer incurs when selling vehicles.

Dealer installed options: Additional equipment that is installed by the dealer. Since the dealer is the one who sells these, the price may vary from one dealership to another. It is also worth noting that dealers are invoiced the same amount for each option, leaving plenty of room for negotiating if you know the number.

Dealer invoice price: Also known as the dealer cost, this is the amount that dealers have to pay for the vehicles they sell, which is usually accomplished via a pre-set line of credit. This number is the rock-bottom price anyone can pay for a car, but it is almost never advertised. The best way to learn the dealer cost is by consulting our free report.

Dealer margin/profit: The amount of money a dealer makes on each vehicle they sell. The simplest way to determine the dealer’s profit is by subtracting the dealer invoice price from the MSRP or the negotiated price. When negotiating, it is best to add three to seven per cent over invoice price to account for dealer margin.

Dealer overhead and bottom-line profit: Aside from the invoice price, dealers have to cover the salaries, commissions and bonuses of their salespeople and managers. They also have to account for utility and lease charges. Whatever remains after covering all the expenses is the dealer’s actual net profit.

Dealer participation: A sum of money that a dealer contributes to lower the total price of a vehicle in hopes of motivating the consumer to make the purchase.

Depreciation: The loss of a vehicle’s value over a specified period of time – or the difference between a vehicle’s original price and its value down the road (residual value). Dealers do not provide a specific figure for depreciation in lease contracts, but it is factored in when setting residual values.

Factory-installed options: Additional equipment that is installed by the vehicle’s manufacturer. The price for these features and parts does not vary from dealer to dealer. It is also worth noting that dealers are invoiced the same amount for each option.

Factory-to-consumer incentives: Discounts that car makers offer to consumers in order to boost sales. These incentives tend to be openly advertised on television and the internet. Some of the most common offers include low financing/leasing rates, cash rebates or a combination of both.

Factory-to-dealer incentives: Discounts that car makers offer to dealers to motivate them to sell more vehicles. These rebates are usually not advertised since their sole purpose is to benefit the dealer, not the consumer. Consumers can certainly take advantage of them in negotiations, if they learn of their existence, but in most cases, this practice is not advisable. Internally, these incentives are also known as marketing credits, trading dollars, factory cash, dealer cash, dealer bonuses or invoice credits.

Finance incentive: A loan discount on selected vehicles and/or in specific locations that manufacturers offer to consumers for a limited time.

Finance rate: Same as “APR.”

Incentive: A limited-time discount used by manufacturers to boost vehicle sales.

In-and-out trade: A transaction that allows the consumer to trade in their used vehicle for a new one with a promise that it will be resold to a third party for the same price as the trade-in. This allows the consumer to lower the price of their next vehicle, while allowing their friend or relative to buy their previous car for less.

Lease Incentive: A lease discount on selected vehicles and/in specific locations that manufacturers offer to consumers for a limited time.

Lease factor: Same as “Money factor.”

Lease term: The duration of a vehicle lease, usually expressed in months.

MSRP: The Manufacturer’s Suggested Retail Price is the cost of a vehicle as determined by the manufacturer. It is the amount that new-car dealers would like their customers to pay, and as such, it is higher than the invoice price. However, unless the car is a hot-seller, this number is negotiable.

Maximum dealer margin/profit: The difference between the invoice price and the MSRP. It is the highest amount a dealer can make off a new vehicle.

Money factor: The auto industry’s word for the interest rate used for calculating the monthly lease payment. It is equal to the lease’s APR divided by 2,400. For instance, an APR of 5.4% is equal to a money factor of 0.00225.

Non-stackable incentives: A discount that cannot be combined with finance rates, lease rates and other discounts offered for a vehicle.

OEM: Original Equipment Manufacturer is the producer of a vehicle.

Residual value: The amount a vehicle is worth after a specified period of time. OEMs use residual values to determine mileage limits and monthly payments for leased vehicles.

Special lease rate: A monthly lease payment that is reduced by the manufacturer below what is offered by independent leasing companies (with the cost being covered by the manufacturer). Also known as a “subvented lease” or a “subsidized lease,” this discount is usually accompanied by a higher residual value or a lower interest – or both.

Stackable incentives: A discount that can be combined with finance rates, lease rates and other discounts offered for a vehicle.

Tax savings: A benefit that dealers offer during a trade-in. It involves subtracting the value of the trade-in vehicle from the price of its replacement before either of the two amounts are taxed. Doing so reduces the taxable amount the buyer has to pay.

Trading dollars / retail delivery credit: Same as “Factory-to-dealer-incentives.”

Trade-in: A process that involves turning in a used vehicle at a dealership to buy a newer model at a lower price.

Have a Car in Mind? See the latest incentives, rates and rebates now!

Updated on March 26, 2013

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