What is Dealer Holdback?
Dealer holdback is a percentage of the price of a new car, typically 2-3% of MSRP, that is returned to a dealer from the manufacturer after a car is sold. This money is typically used to help dealers pay for finance charges they have accrued while keeping unsold cars on their lot. This is a “refund” of money to the dealer for what they originally paid to buy the car from the manufacturer.
Read about other car financing terms in this other car terms glossary.
How Does Dealer Holdback Work?
Although you'd assume that car dealers make a small fortune every time they sell a new car, that’s not always the case. In fact, there are a lot of costs associated with selling you that car, and that can leave the dealer with little to no profit at the end of the day.
Typically, car dealers will finance their inventory through something called a Floor Plan. When they order a car from the factory, the finance company covers the invoice price, and the dealer pays a certain amount of interest for every day that the vehicle remains in inventory. Once the car sells, the dealer pays off the loan, and the car gets replaced.
As you would expect, the dealer can make more money by selling the vehicle faster (since he’s not paying as much interest). To do this, many dealers will hold one of those “invoice” sales, where a car will seemingly be sold for the dealer’s cost. But there’s a little more to it than that.
To bolster the dealer’s bottom line, manufacturers instituted something called “dealer holdback”. This is a percentage of a vehicle’s price that gets returned to the dealer several times a year (usually quarterly). When determining the invoice price, the dealer holdback is generally included in the price. The purpose of the dealer holdback is to offset the interest paid by the dealer to finance his inventory. This ‘holdback’ is usually capped at 2-3% of the vehicle’s invoice price.
Since the dealer can keep more of that money if he doesn’t have to pay 2 months-worth of interest, those $1 over/under invoice sales have become quite popular. They not only allow the dealer to move their inventory faster, but their salesperson’s commission is also capped at the invoice price of the car. Leaving more of the holdback to be counted as profit.
Is Dealer Holdback Negotiable?
Since it is basically the dealer's own money, they are often not thrilled with the idea of passing this money along to the consumer.
When negotiating the price of your new car, the dealer holdback will almost never be up for discussion. This is the dealer’s fall-back profit, and many times, it will just cover the floor plan interest and the salesman’s commission.
If there actually is a dealer holdback, the salesman won’t be able to tell you the amount. Their commission is based on the “gross profit”, so the only ones to know the amount of the holdback will be the sales manager and upper management. Since the dealer holdback is paid out by the manufacturer, just let the dealer have this money.
Dealer Holdback by Manufacturer
The holdback amount varies from manufacturer to manufacturer and may vary from what’s shown below. Here’s a current breakdown for each manufacturer:
|Car Manufacturer||Dealer Holdback||How is Holdback Calculated|
|Acura||2%||off base MSRP|
|Buick||3%||off total MSRP|
|Cadillac||3%||off total MSRP|
|Chevrolet||3%||off total MSRP|
|Chrysler||3%||off total MSRP|
|Dodge||3%||off total MSRP|
|Fiat||3%||off total MSRP|
|Ford||3%||off total MSRP|
|GMC||3%||off total MSRP|
|Honda||2%||off base MSRP|
|Hyundai||3%||off total MSRP|
|Infiniti||1.50%||off base MSRP|
|Jeep||3%||off total MSRP|
|Kia||3%||off base MSRP|
|Lexus||2%||off base MSRP|
|Mazda||1%||off base MSRP|
|Mercedes Benz||1%||off base MSRP|
|Mercury||3%||off total MSRP|
|Mitsubishi||2%||off base MSRP|
|Nissan||2%||off total invoice|
|Ram||3%||off total MSRP|
|Smart||3%||off total MSRP|
|Subaru||2%||off total MSRP|
|Toyota||2%||off base MSRP|
|Volkswagen||2%||off base MSRP|
|Volvo||1%||off base MSRP|
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