If you’re reading this, odds are you’re aware of the severe shortage of new cars, trucks, and SUVs that is plaguing the global economy right now. At the time of writing this, projections for total production losses resulting from the microchip shortage will be more than 7.1 million vehicles. That’s staggering.
What happens when you take millions of vehicles out of production? Evidently a lot. One phenomena we’ve seen is the proliferation of dealers telling customers to “factory order” a vehicle instead of buying one off their lot (that is if they even have any on their lot to sell). For many car buyers, factory ordering is an unfamiliar purchase process and can be intimidating.
Everyday on the CarEdge Community Forum we field questions such as:
- How do I factory order a car?
- What can I negotiate?
- Can I negotiate?
- How does it work?
- And more
We’ll address these questions (and more) below.
Let’s dive in.
How do I factory order a vehicle?
The steps to factory order a car isn’t too terribly complicated, however, for many, it’s an entirely unfamiliar process. Because of the ongoing chip shortage, many dealerships will likely proactively ask you to order a vehicle instead of purchasing one on their lot. Here’s the roadmap:
- Go to the manufacturer website and build the vehicle you want
- Print out your build sheet
- Go to the dealership with your build sheet
- Show the salesperson the build that you want
- Request the out-the-door price (OTD) for the vehicle
- Negotiate the OTD price
- Agree to a selling price
- Sign the buyer’s order (and get the sales manager to do the same thing)
- Get a signed copy of the agreed upon build sheet
- Leave the dealership
- Follow up with the salesperson and request weekly updates on the status of your vehicle
- Your vehicle arrives at the dealership
- Research ancillary product prices (extended warranties, GAP insurance, etc.)
- If financing, come in with a pre-approved bank loan
- Meet with the F&I Manager
- See if they can beat your interest rate or the prices on the ancillary products
- Take delivery of your vehicle
- Drive-off in your brand new car, truck, or SUV
The simple “18 steps to factory order a car” … Simple, eh? Let’s break things down a bit more.
Can I negotiate on a factory order?
Can you negotiate on a factory order car? Yes, yes, yes. Even in 2022, when vehicles are selling with insane additional dealer markup, you can, and you should negotiate the price of your factory ordered vehicle.
There is a common misconception that because you are “custom ordering” a vehicle you cannot negotiate with the dealer, simply because it is “custom”. That couldn’t be further from the truth. From the dealership’s perspective a factory order is just like any other car deal. It’s a piece of inventory that they’ll make front-end and back-end profit on. As a customer, you should treat it the same way too.
When do I negotiate on a factory order?
So when do you negotiate on a factory order? At the time of placing the order. Not when you take delivery of the vehicle!
This is another common misconception when it comes to factory ordering a car. You need to negotiate when you first place the order, not when you take delivery. Why? Because the dealership treats the ordered vehicle similarly to any other sales. When your salesperson/sales manager is putting together the “deal jacket” (industry lingo for all the paperwork associated with your car deal), they will have an out-the-door (OTD) price associated with the deal. That OTD price shouldn’t be MSRP + fees + taxes + tags/registration. Instead, if you negotiate with them it should be MSRP – dealer discount + fees + taxes + tags/registration.
If you don’t negotiate with them then, the assumption is that the deal is at MSRP, and your leverage (once the vehicle is on the dealer’s lot) is lesser. Especially in the current market where inventory is so scarce.
It’s also important to negotiate the price upfront, because you want to “lock-in” the price so that there are no surprises when you finally take delivery. More on that below.
What do I negotiate on a factory order?
What can you negotiate when you factory order a vehicle? It’s simple, all the same things you would negotiate when you purchase a car off the lot. Remember, if it’s taxable, it’s negotiable!
Negotiate on taxable fees (doc fees, processing fees, etc.), and on the vehicle’s selling price. In today’s market be prepared to negotiate off additional dealer markup. This has become very common because of the lack of supply.
We encourage you to read success stories from other CarEdge community members to hear what types of deals they have been able to secure, and how they did it.
What about manufacturer incentives?
Manufacturers incentives are applied at the time you take delivery of the vehicle, not at the time of placing the order. For example, if you order a truck today you will negotiate the OTD price with the salesperson and sales manager today. You will then take delivery of the truck 8 weeks later. At that time you will be eligible for any applicable manufacturer incentives that are currently active. You will not be able to retroactively receive the incentives that were in place when you ordered the vehicle.
That being said, you can ask the sales manager to see if they can “lock-in” the current incentives on the deal, however they likely will not be able to.
How do I negotiate on a factory order?
Negotiating a factory ordered vehicle is very similar to negotiating a vehicle that is on the dealer’s lot. If you are unfamiliar with that process, please consider going to Deal School, or signing up for a CarEdge Membership so that we can help you.
That being said, there is one distinct difference between negotiating a vehicle on a dealer’s lot and one that is ordered. That distinction is floor-plan assistance.
What the heck is floor-plan assistance you wonder?
You may be more familiar with “holdback” which is a form of “under the line” profit that dealerships collect from the manufacturer. In addition to holdback, dealerships also receive floor-plan assistance and advertising assistance from their manufacturer.
Floor-plan assistance is a set aside amount of money for each vehicle (it appears on most dealer invoices) that the manufacturer gives to the dealership to offset the interest expense associated with “floor-planning” the vehicle. You may not have known this, but car dealerships do not pay cash for their inventory. They finance it, just like you or I would. That means they have an interest expense on each vehicle that is on their lot.
Floor-plan assistance helps offset this cost for the dealership.
Why is this important? Because since you are factory ordering your vehicle and will likely take delivery within a few days of it arriving at the dealership, the dealer will not incur any meaningful interest expense. That means the floor-plan assistance from the manufacturer is pure profit for them.
Now, that being said, in 2022, because of how tight the industry is on new vehicle supply, it is unlikely that a dealership will eat into their “under the line money” to give you a better deal, however we encourage you to bring this up when negotiating a factory order. It never hurts to ask!
Are there any “red flags” I should watch out for?
As you can tell by now, factory ordering a car is very similar to purchasing a vehicle straight off the dealer’s lot. It isn’t too terribly different, however there are some distinct changes in the process. That being said, are there any particular “red flags” you should watch out for when placing a factory order? The answer is “yes”.
The dealer won’t negotiate the price when I place the order
This is a major red flag. If the dealership isn’t willing to negotiate on the price when you place the order you can guarantee that two things will happen when the vehicle does arrive:
- You’re in for a surprise regarding what the vehicle’s actual OTD will be; and
- There’s no guarantee that the vehicle is even “your vehicle” when it does arrive.
We’ve heard too many stories of people “ordering” a vehicle and not negotiating the price in advance, only to have a nasty surprise when it finally does arrive at the dealership.
The dealer insists that dealer-installed accessories are required
In today’s market you will likely run into this with some frequency, however it’s an illogical argument. Dealer-installed accessories are added by the dealer when they receive a vehicle. You’ve likely seen these on an OTD price worksheet in the past. Things like wheel locks, or LoJack are common dealer-installed accessories.
A common line you’ll hear from a salesperson or sales manager is “we can’t take that off, we put it on every car.” Well, the great thing about factory ordering a vehicle is that the dealership doesn’t have to install any of their accessories, because you’ll take delivery as soon as the vehicle arrives.
If the dealership is persistent about not removing them, that’s a red flag, because it’s a truly illogical argument.
The dealer won’t sign a buyer’s order or build sheet
You’ve negotiated your OTD price and you’re ready to put down a deposit to hold the vehicle. Woohoo! The only way to really make the agreed upon OTD price legitimate is to have a mutually signed buyer’s order. That, plus the deposit and the signed build sheet, make it clear that the price is the negotiated price.
If a dealership won’t sign a buyer’s order, that’s a red flag. You don’t want to arrive the day your vehicle is ready only to find out that the negotiated selling price you had is no longer agreeable to the dealership (this has been happening with more and more frequency as of late), and the only way to protect yourself from that is to have the signed agreement.
If they won’t do it, that’s a no go.
The dealer didn’t request a deposit
When you factory order a car you will need to put down a deposit on the vehicle. This is typically $500 to $1,000. If the dealership does not request a deposit, or if they won’t accept your deposit, that means the vehicle you’re “ordering” isn’t really your vehicle. Just like the signed buyer’s order, if you can’t get a deposit down, you’re in for a rude surprise when the vehicle finally does arrive.
To “lock-in” your build and the OTD price, have both the dealership and yourself sign a buyer’s order, and put down the requisite deposit amount that they require.
I placed an order and haven’t heard from the dealership in weeks
This is an unfortunate, albeit common occurrence. If you’ve followed our steps and placed an order and then the dealership has gone silent, be sure to go up the chain of command at the dealership to contact someone in a leadership position to get information about your order. This is all about being your own advocate. We encourage you to use our email templates when contacting the dealership.
Have other questions about factory ordering? Please post them on the CarEdge Community here: https://community.caredge.com/home
We hope this helps. Please consider sharing it with anyone you know who might find it valuable.