Dealer Holdback
When looking to buy or lease a car, there is a certain percentage of the price that is paid back to the manufacturer. This is referred to as the dealer holdback. Knowing the holdback that the manufacturer needs in order to make a profit can greatly assist the person in negotiating down a price to better suit their needs.
When a car is purchased by dealerships, they must pay the full cost of the car at the time of ordering this. Most people are under the assumption that this is paid when the car is sold; however, that is not the case. The dealership borrows money in order to pay for their inventory, while the manufacturer of the car is going to provide the finances and maintenance costs for the first 90 days that the car is on the lot. New cars seldom stay on the lot for longer than three months in most cases. However, if this does happen, the dealership has to pay for these expenses out of their own pocket in order to have the car financed and ready to go. During the first 90 days of a car being on a lot, if it is sold, the dealership has guaranteed profit since they have had to pay nothing out of pocket. Because of this holdback cost, the dealer can advertise the car for a few bucks over the invoice price, yet still make a ton of profit on the sale.
Dealerships are going to try to sell the car sooner rather than later during this 90 day period, since the sooner that this is sold during this time frame, the more money that the dealership is going to make. For example, a car that has been on the lot for 45 days will render half the profit that it would if it was sold 2 days into the 90 day period. After 90 days, the holdback profit that the dealership gains disappears.
So how does holdback help dealers? This is going to allow them to advertise those huge sales that make many people think that they are getting a huge opportunity. For example, ads may suggest that the dealer is only asking a dollar over the invoice price. The rebates and other incentives that are being offered with the sale of the car are also benefitting the dealership. For example, a $1000 dollar rebate on an $18,000 car means that the car is being sold for $17000. Even with factoring in the negotiating and the other fees that will apply; the dealer is still making around $1000 off the car, while a person is getting a car that is around $2000 off the invoice price.
The holdback that is in effect with these companies is something that dealerships do not want the customer to know since it can dwindle down their profits. Therefore, you should never mention that you know the holdback amount as it can make negotiations even harder. With that being said, knowing what the holdback is can help the buyer to ensure that they are getting a good deal since they know just how much of the money is pure profit for the dealer.
There are several ways in which holdback is calculated and this is something that you must know in order to make negotiations easier:
- Holdback off the total MRSP means including all options before figuring the holdback amount
- Base MRSP means calculating the holdback before options
- Total invoice means knowing the price of all options then figuring the holdback amount
- Base invoice is the holdback calculated before adding in the options
The following are the most recent holdback amounts that are on a specific manufacturer:
- Acura: 3% Base MSRP
- Buick: 3% Total MSRP
- Cadillac: 3% Total MSRP
- Chevrolet: 3% Total MSRP
- Chrysler: 3% Total MSRP
- Dodge: 3% Total MSRP
- Ford: 3% Total MSRP
- GMC: 3% Total MSRP
- Honda: 2% Base MSRP
- Hyundai: 2% Total Invoice
- Infiniti: 1% Base MSRP
- Jeep: 3% Total MSRP
- Kia: 3% Base Invoice
- Lexus: 2% Base MSRP
- Lincoln: 2% Total MSRP
- Mazda: 2% Base MSRP
- Mercedes-Benz: 3% Total MSRP
- Mercury: 3% Total MSRP
- Mitsubishi: 2% Base MSRP
- Nissan: 2% Total Invoice
- Saab: 2.2% Base MSRP
- Subaru: 2% Total MSRP (some locations in the US may differ slightly)
- Suzuki: 3% Base MSRP
- Toyota: 2% MSRP (differences according to region in the US)
- Volkswagen: 2% Base MSRP
- Volvo: 1% Base MSRP
Those current manufacturers not listed are not having any holdback or the brand has been discontinued.
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