What is Dealer Holdback?

Howdy, Driver? The dealer holdback is a goldmine the dealer will not reveal to you. Nevertheless, you can use it to your advantage to secure the best deal on a new car.

What is dealer holdback

Note that not every automaker offers a holdback amount and it is not a consumer incentive such as the rebate or cash back, though it boosts vehicle sales somehow.

What is Dealer Holdback?

Dealer holdback is the payment made by the manufacturer to the dealer after selling a vehicle. The purpose of dealer holdback is to reduce variable costs and supplement the cash flow of the dealer after vehicle sale.

The holdback can be a percentage of the invoice price or the MSRP (manufacturer suggested retail price), typically 1-3 percent.

Most of the time, informed car shoppers attempt to use the dealer holdback for calculating the vehicle net price with the hopes of negotiating with the dealer’s bottom-line price.

It seldom works because it is difficult to ascertain the actual net cost of a dealer.

Instead of pressuring the dealer to bring in their holdback in the vehicle, focus on the true market value of the vehicle. You can determine the true market value of a car by checking consumer price suggestions on sites such as Edmunds.com and Cars.com.

How Dealer Holdback Works

When you go to buy a new car, the dealership has an inventory for you to select a vehicle.

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Of course, the dealer pays the manufacturer to obtain the inventory. The amount of money the dealer pays and that reflects on the automaker’s invoice is the invoice price of the car.

Now, how the holdback works!

If a manufacturer offers a holdback amount, they have to inflate the invoice price of all the vehicles to be sold and withhold some percentage. Of course, a dealer will buy the cars but would be reimbursed the inflated amount by the manufacturer at predetermined times.

Note that it is only after a vehicle is invoiced to the dealership that the automaker releases the holdback.

Does a Dealer Benefit from the Holdback?

Yes, they do. Below are the ways a dealer benefits from the holdback:

  1. It Increases Profit

Typically, sales personnel earn commissions according to the vehicle sales gross profit. Now, the dealer holdback can lower the gross profit, which lowers the commission cost the dealer pays the salesman.

  1. Dealers Can Borrow More

A dealership finances a vehicle based on the invoice amount. Note that the invoiced amount contains the manufacturer holdback. As the invoiced amount increases, the dealer can borrow even more from the lender to finance a vehicle.

  1. Sell at Invoice Price

A dealer may decide to sell vehicles at invoice price aided by the holdback to attract more buyers. The common practice is that the dealer will advertise vehicles for sale at invoice price.

How Dealer Holdback is Calculated

A dealer holdback may be calculated using any of the 4 ways below:

Total MSRP: Calculate total MSRP and additional options.

Base MSRP: Calculate the base MSRP before additional options.

Total Invoice: Calculate the invoice price of all options.

Base Invoice: Calculate the base invoice before additional options.

MSRP Calculation

Assume that we have a Kia MSRP at $21,900. The dealer holdback is 3% and the vehicle options are cargo mat, cargo tray, mud guards, and puddle lights totaling $500.

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Calculating Dealer Holdback from Total MSRP

Kia Price =21,500
Vehicle Options Total =$500
MSRP (vehicle options + retail price) =$22,000
Holdback Percent =3%
Dealer Holdback =$660

Calculating Dealer Holdback from Base MSRP

Kia Base MSRP =21,500
Holdback Percent =3%
Dealer Holdback (without vehicle options) =$645

Invoice Price Calculation

Assume that the invoice price of Acura is $25,000. The dealer holdback is 2%. The invoice vehicle options are cold weather package, power sunroof, rear side airbags, and Bluetooth connectivity totaling $700.

Calculating Dealer Holdback from Invoice Price

Acura Invoice Price =$25,000
Vehicle Options Total =$700
Acura Price = Vehicle Options (Total Invoice Price) =$25,700
Holdback Percent =2%
Dealer Holdback =$514

Calculating Dealer Holdback from Base Invoice Price

Acura Invoice Price =$25,000
Holdback Percent =2%
Dealer Holdback =$500

Examples of vehicle options on a car may include LED side mirror spotlights, remote start system, electronic lock axle, leather bucket seats, etc. Check the MSRP for the available vehicle options.

Dealer Holdback for All Manufacturers

Nil means no dealer holdback

VEHICLE
BRAND
DEALER
HOLDBACK
Acura2% of the Base MSRP
AudiNil
BMWNil
Buick3% of the Total MSRP
Cadillac3% of the Total MSRP
Chevrolet3% of the Total MSRP
Chrysler3% of the Total MSRP
Dodge3% of the Total MSRP
Fiat3% of the Total MSRP
Ford3% of the Total MSRP
GMC3% of the Total MSRP
Honda2% of the Base MSRP
Hyundai3% of the Total MSRP
Infiniti1.5% of the Base MSRP
JaguarNil
Jeep3% of the Total MSRP
Kia3% of the Base Invoice
Land RoverNil
Lexus2% of the Base MSRP
Lincoln2% of the Base MSRP
Mazda1% of the Base MSRP
Mercedes Benz1% of the Total MSRP
Mercury3% of the Total MSRP
MININil
Mitsubishi2% of the Base MSRP
Nissan2.8% of the Total Invoice
PorscheNil
Saab2.2% of the Base MSRP
ScionNil
Smart3% of the Total MSRP
Subaru2% of the Total MSRP
Suzuki3% of the Base MSRP
Toyota2% of the Base MSRP
Volkswagen2% of the Base MSRP
Volvo1% of the Base MSRP
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How Much Does a Dealer Make from Holdback?

Assuming an auto dealer sells 500 vehicles in the first quarter and the average holdback is $500 at 3%, the dealer makes $250,000 ($500 x 500 vehicles). The automaker may pay the holdback to the dealer quarterly.

Although $250,000 may seem like a lot of money from selling 500 cars, operating a dealership is expensive.

Is Dealer Holdback Negotiable?

Since the dealer holdback belongs to the dealer, it is not negotiable, even if the dealer decides otherwise. The dealer holdback serves as a fallback profit for the dealer and it helps to negotiate with the bottom-line price. It also cuts the cost of paying commission to the salesman and helps the dealer to borrow from the lenders.

Can You Use Holdback in Your Negotiation?

Yes, but the dealer holdback is reserved for the dealer only, which means you are not negotiating the holdback directly. The holdback is an amount paid to the dealer, even if the salesman agrees to negotiate using the holdback, they are not negotiating with their holdback goldmine. Instead, the dealer is negotiating using their bottom-line to entice you to buy the car from them.

Do All Manufacturers Offer Dealer Holdback?

No, some manufacturers such as Audi, Jaguar, BMW, and Porsche do not offer dealer holdback.

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