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Calculate Dealer Holdback on Any New Car

Dealer holdback is a percentage of money built into the factory invoice price of a new car by the manufacturer. It's important to know that not all manufacturers provide their dealers with a holdback amount and most car buyers don't understand what dealer holdback is, what it's used for, or how to calculate it.

Some dealers will negotiate holdback and some will not. A common mistake many car buyers make is they attempt to negotiate this secret dealer money without doing the research to find out what the true amount is first.

Car dealers will rarely be upfront with this closely guarded secret unless you bring it up first. Knowing how much dealer holdback is will give you a better idea of how to negotiate your car deal.

What is Dealer Holdback?

Understanding what dealer holdback is and how to calculate it is very important when it comes to determining the cost of a new car, and how to figure a fair profit offer. Many people believe dealer holdback is a really large amount of hidden money new car dealer's secretly get to pocket.

Depending on the manufacturer, the holdback percentage will be somewhere between 0-3% of the MSRP or invoice price. The dealer is reimbursed holdback from the manufacturer after the vehicle is sold. It's usually totaled from all the vehicles sold within a specific time frame and sent from the manufacturer to the dealer on a quarterly basis.

The above is a rough example to show how a dealer collects holdback from a manufacturer. As you can see, this is why dealer's try their best to keep it a secret. Since holdback is a percentage, the amount varies depending on the vehicle. The amount could be higher or lower depending on the dealership and the percentage they receive. $512,000 may seem like a lot of money, but it is very expensive to run a new car dealership.

Holdback was created by the manufacturer's to help reduce a car dealer's variable sales expenses (sales commissions and such) and to supplement a dealer's cash flow. Bottom line, dealer holdback artificially elevates a car dealership's cost on paper.

You will want to know what the holdback amount is on the specific vehicle you're interested in. It's one of the key figures you need to calculate a fair profit new car offer to present to a dealer.

How Dealer Holdback Works?

When a car dealer orders a new vehicle from the manufacturer, they'll finance it through the manufacturer's lending arm or a third party. The lender will normally only finance up to the invoice amount of the new car. The invoice is inflated with the holdback amount, this allows the dealer to borrow a little more money on each car it orders.

The dealer pays interest to the lending institution on a new car until it's sold, this is called "flooring." This is why dealers want to sell their vehicles as fast as they get them on the lot. The quicker they sell the car the less interest they have to pay. Once the vehicle is sold, the dealer will receive the holdback amount in one check from the manufacturer.

Car salesmen are normally paid on the gross profit of a car deal. Since dealer holdback is built into a new car's invoice, car salesmen miss out on any commissions related to holdback.

Dealer holdback, customer rebates, and incentives allow car dealers to run heavily discounted prices in their print and media advertising. This is another reason you should always read the "fine print" when browsing a car dealer's advertisement.

Is Dealer Holdback Negotiable?

Some books and well-known car buying websites tell you to not even try to negotiate a dealer's holdback. These so called experts tell you it's a losing battle, but I have to disagree. There's been many times I've personally given up holdback, or at least a portion of it, to sell a car. Being a dealer myself, I say you never know what a dealer will do, "If you don't ask, you don't receive."

Some car dealers, like myself, may give up a portion or all of the dealer holdback to sell a car that's been on the lot for a while. The interest a dealer has to pay starts to add up when a vehicle sits around for too long. The dealer would be glad to give up holdback to get rid of an old aged vehicle.

They may be just shy of a unit bonus from the manufacturer, or the sales manager may be trying to hit his own personal bonus. A unit bonus is a lot more money in the dealer's pocket than the holdback amount on a single car. The point is, you just never know what a dealer will do to sell a car.

This is why you should cast your net far and wide when using online sites such as Edmunds, TrueCar, CarsDirect, and Automotive.com when shopping for a new car in your local area.

The goal is to reach out to as many dealerships as possible. Learn more on how to use these services to get free no-obligation new car quotes and gain a competitive advantage in my section on how to start a bidding war between dealers online.

Current New Car Dealer Holdback Percentages 2016

Below is a list of the current new car manufacturers, and their dealer holdback percentages. Some of the dealers listed are no longer in business or have been phased out. I've left the last known holdback rates for them for students doing research.

Revised June 2016

How to Figure Dealer Holdback on Any New Car

There are four different ways holdback is calculated on a new vehicle:

• Base Invoice - Figured from base invoice before any options.
• Total Invoice - Include invoice price of all options before figuring holdback.
• Base MSRP - Figured from the MSRP before any added options.
• Total MSRP - Calculated from total MSRP with all options included.

Most foreign manufacturers like Toyota, Nissan, and Honda will calculate dealer holdback as a varible percentage of the base invoice, total invoice, base Manufacturer Retail Price (MSRP), or total MSRP (sticker price).

Domestic manufacturers like General Motors, Ford, and Chrysler offer car dealers a holdback of 3% of the total MSRP of the new car. Some manufacturers like BMW, Audi, and Porsche offer no dealer holdback to a car dealer.

If the manufacturer calculates holdback from:

Base Invoice: You must multiply the percentage by the base invoice price before any factory added options or packages to calculate the dealer holdback amount.

Total Invoice: You must add all the factory added options and package costs together for a total invoice cost before multiplying the percentage for the total dealer holdback amount.

Base MSRP: You must multiply the holdback percentage by the base MSRP before the factory added options and packages to get the dealer holdback amount.

Total MSRP: You must include all factory added options and packages for a total MSRP before multiplying the percentage for the dealer holdback amount. (Do not add the amounts of dealer added options to the total before figuring the dealer holdback)

Walkthrough on Figuring Holdback on a New Car

You want to find the holdback amount on a 2015 Ford F150 Supercab. First click on Edmunds.com. Search by the make (Ford), model (F150 Supercab), year (2015). Scroll down to the "See What Others Paid" section and click on the box that says "Build and Price."

Choose the style and trim of the vehicle and then move on to the color and options you desire. Once finished, click the "True Market Value" tab.

Looking at the chart above, Ford has a holdback of 3% of the total MSRP. So, you take the total retail price and multiply it by 3%. Do not add the destination fee when calculating dealer holdback.

The Ford F150 I built has an MSRP of $46,620 with added options included, minus destination, multiply it by 3% and you get a dealer holdback of $1,398.60.

Subtract the $1,398.60 from the total invoice of the F150 and you get $40,474.40. At the time of writing this example, there are no other dealer incentives or rebates available for the 2015 Ford F150.

Now you must add the $1,195 destination fee (sorry, there's no way around it) and you end up with a total of $41,669.40.

Your GOAL is to buy the car as close to $41,669.40 as you can, this includes the destination fee. If there were any factory rebates, or dealer cash available on this car, you would subtract it from the $41,669.40, and that would be your new purchase price goal.

Outside factors such as the vehicle's popularity and demand will affect how much a dealer is willing to discount the price of a car. Use recommended automotive sites such as TrueCar, Edmunds, CarsDirect, and Automotive.com to check the current market on a vehicle and which dealers in your local area are more flexible on their pricing.

To learn more more on how much you should pay for a new car, read my section on how to calculate a fair profit new car offer.

Share Your Tips - If you have any tips on how to figure a car dealer's holdback that will help others save money, please tell us about it in the comments below, so we can share it with everyone.