A week ago Toyota announced an “Eco-nomic Savings Bonus” on the Prius. This bonus took the form of $600 to $2,000 price cuts on the Prius’ option packages.
The first question that came to my mind was, “But how much of the cut is real?” Meaning: how large is the cut in the invoice price? As discussed in this editorial, vehicle manufacturers have been making both price increases and price reductions smaller than they appear by narrowing dealer margins when prices change. And Toyota gives its dealer larger margins than anyone else, so the Prius’ margins were ripe for reduction.
Well, I now have the invoice prices on these packages, and my suspicion was correct.
Let’s look at two packages, one whose price was cut $600 and one whose price was cut $2,000.
One note first: Toyota raised the price on many of these packages by $150 or $200 a few months ago, after the start of the model year. So I’ll be comparing the new invoice prices both to the most recent ones and to those at the beginning of the model year.
That said, let’s look at Package 3. It’s MSRP was cut from $2,705 to $2,105, a $600 reduction. But the invoice price was only reduced by $243. The rest of the reduction came out of the dealer’s margin. And, if you compare the new invoice price with that at the beginning of the year, the difference is only $123. Assuming you could pay the same amount over invoice last fall and now, the actual price reduction is $123, not $600.
Put another way, the dealer margin used to be 21 percent of MSRP, a generous percentage these days. Now it’s 10 percent of a substantially reduced MSRP. In absolute terms the dealer’s margin on this package went from $567 to $210. Ouch.
Now for Package 6, which received a $2,000 cut to $4,550. The invoice price was only reduced by $1,214. And compared to the beginning of the model year, the change was $1,054, just a bit over half the $2,000 change in the sticker price.
Here as well the dealer margin has been cut, from 19 percent of MSRP to 10 percent of a sharply reduced MSRP. In absolute terms, the margin went from $1,241 to $455.
So there you have it, a large amount of the new “bonus” is composed of a rollback in an earlier price increase and a massive reduction in dealer margins. The actual reduction in the price a buyer pays will be much smaller than the size of the bonus.