A dealer holdback is a set percentage of the Manufacturer's
Suggested Retail Price (MSRP) of a new vehicle that the dealer collects
from the manufacturer. It is designed to guarantee a margin of profit
for the dealer on the sale of a vehicle.
Since the manufacturer predetermines dealer holdbacks, they are rarely
negotiable. But knowing about the holdback and knowing the percentage
of the MSRP can help you out in the negotiating process.
Let's take a look at how holdbacks affect the dealership. When a dealer
gets cars from manufacturers, they are purchased from the manufacturer
at the factory invoice price. Since the dealership pays for the vehicles
when ordered rather when sold, and since they must keep an inventory
of the vehicles, they need to borrow money from banks. The manufacturer
pays the financing, as well as the vehicle maintenance for 90 days.
This is the holdback. Any costs after the 90 days comes out of the
dealership's profits.
The dealer holdback is not hidden, but it isn't shown on the window
sticker. It will, however, be on the invoice.
But how does the holdback help you? Let's take a look. (It's in your
best interest to keep your knowledge of the holdback to yourself,
except in certain circumstances.) Let's imagine you're interested
in a truck that (hypothetically) has an MSRP of $19,000, which includes
a $500 destination fee. The invoice dealer invoice for the truck is
$17,000, which includes any optional equipment and a holdback. The
holdback for this particular manufacturer is two percent of the MSRP,
which brings the actual cost to the dealer at $16,430. So if the dealer
sells you the truck at the invoice, he or she will still make almost
$600 on the deal. If you offer a dealer three percent over invoice,
or $17,510 plus destination for the truck, you are paying less than
MSRP and the dealer is making a profit of $1080. This is a good deal
on both ends.
As we stated earlier, the dealer only makes a profit if the car is
sold within 90 of its arrival to the lot. The holdback amount decreases
the longer a car has been on a lot. After 90 days, the holdback profit
is zero.
There are also rebates and incentives to consider, which normally
go to the dealer. Let's use the truck as the example again. The truck
has a rebate of $1000, which brings the invoice price from $17,000
to $16,000. Now, at the three percent over, that brings the price
to $16,480. Now the dealer is making a profit of about $1100 and you're
still paying $2520 less than MSRP.
So when do you reveal your knowledge of the holdback? As you have
seen, the holdback is most profitable to the dealer the sooner the
car gets off the lot. Let's say that truck you wanted came in a color
that wasn't on the lot. That means the dealer has to special order
it from the manufacturer. In this instance, let the dealer know you
know about the holdback. After all, if you get the truck when it comes,
that's 100% for the dealer. This will help you in price negotiations.
What are the holdbacks for each company? Holdbacks can fluctuate from
year to year, and may change at any time. However, here are the current
holdback amounts for the 2001 model year:
Acura
Audi
BMW
Buick
Cadillac
Chevrolet
Chrysler
Daewoo
Dodge
Ford
GMC
Honda
Hyundai
Infiniti
Isuzu
Jaguar
Jeep
Kia
Land Rover
Lexus
Lincoln
Mazda
Mercedes-Benz
Mercury
Mitsubishi
Nissan
Oldsmobile
Plymouth
Pontiac
Porsche
Saab
Saturn
Subaru
Suzuki
Toyota
Volkswagen
Volvo |
|
2% of base MSRP *
No holdback offered
No holdback offered
3% of total MSRP †
3% of total MSRP
3% of total MSRP
3% of total MSRP
no holdback – customer pays MSRP
3% of total MSRP
3% of total MSRP
3% of total MSRP
2% of base MSRP (not including Prelude)
2% of total MSRP
1% of base MSRP plus 2% of base invoice
3% of total MSRP
2.2% of base invoice ‡
3% of total MSRP
3% of base invoice
no holdback
2% of base MSRP
2% of total MSRP
2% of base MSRP
3% of total MSRP
3% of total MSRP
2% of base MSRP
3% of total invoice §
3% of total MSRP
3% of total MSRP
3% of total MSRP
no holdback
2.2% of base MSRP
3% of total MSRP
3% of total MSRP
4% of base MSRP
2% of base MSRP
2% of base MSRP
1% of base MSRP |
* - Base MSRP - holdback calculated before adding options
† -
Total MSRP - holdback calculated after adding options
‡ - Base
Invoice - holdback calculated before adding options
§ - Total
Invoice - holdback calculated after adding options
|
