Calculate Dealer Holdback on Any New Car
What is Dealer Holdback, and is it Negotiable?
Dealer holdback is a percentage of money built into the factory invoice price of a new car by the manufacturer. The manufacturer’s holdback amount varies, typically between 0 and 3%.
It’s essential to note that not all manufacturers offer a holdback amount to dealers. Most vehicle purchasers have no idea what a dealer holdback is, whether it’s negotiable, or how to calculate it.
Table of Contents
- 2022 dealer holdback chart by manufacturer
- What is dealer holdback?
- How dealer holdback works
- How dealers collect holdback
- Is dealer holdback negotiable?
- How to calculate dealer holdback on any new car
- A step-by-step walkthrough on how to figure holdback
What is Dealer Holdback?
Dealer holdback is a portion of the price of a new vehicle included in the invoice price, generally around 2-3% of MSRP. This money is returned to the dealer by the manufacturer in a lump some quarterly. It’s crucial to understand that holdback isn’t usually negotiable, and not all vehicle manufacturers even provide it to dealers.
Although, most dealerships do not like to negotiate holdback. Some dealers will negotiate part or all of their dealer holdback money to sell a car. A common mistake many car buyers make is they attempt to negotiate this hidden dealer money without researching to find out what the actual 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 ( if it’s even available on the car you want to buy ) will give you a better idea of how you should negotiate your car deal.
Understanding what dealer holdback is and how to calculate it is essential when determining the cost of a new car and figuring out an offer to present to a dealer. Many people believe dealer holdback is a large amount of hidden money new car dealer’s secretly get to pocket.
Dealer Holdback = Up to 3% of MSRP or Factory Invoice
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 they sell the vehicle. Every quarter, the amount paid is tallied from all automobiles sold within a particular time range and sent from the manufacturer to the 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 typically only finance up to the invoice amount of the new car. The holdback amount inflates the invoice price; this allows the dealer to borrow a little more money on each vehicle it orders from the manufacturer.
Until the vehicle is sold, the dealer will pay interest to the lending institution, called “flooring.” This is why dealers want to sell their cars 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 manufacturer’s holdback amount in one check.
Car salespeople are typically paid on the gross profit of a car deal. Since dealer holdback is built into a new car’s invoice, car salespeople miss out on any commissions related to dealer holdback.
Dealer holdback, customer rebates, and incentives allow car dealers to run heavily discounted prices in their print and media advertising. Another reason you should always read the “fine print” when browsing a car dealer’s advertisement.
How Dealers Collect Holdback From the Manufacturer
Below is a rough example to show how a dealer collects holdback from a manufacturer. As you can see, this is why a dealer tries their best to keep it a secret. Since holdback is a percentage, the amount varies depending on the vehicle.
789 = New cars sold in the first quarter
2% x Holdback percentage to the dealer. (Average of $650/vehicle.)
$512,850 = Quarterly payment to dealer
Depending on the dealership and their percentage, the amount could be higher or lower. $512,000 may seem like a lot of money, but running a new car dealership is costly.
The manufacturers created dealer holdback to help reduce a car dealer’s variable sales expenses (sales commissions and such) and supplement a dealer’s cash flow.
The bottom line: dealer holdback artificially elevates a car dealership’s new car cost on paper.
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Is Dealer Holdback Negotiable?
Some books and well-known car buying websites tell you not to try to negotiate a dealer’s holdback. These so-called experts tell you it’s a losing battle, but I’m afraid I have to disagree.
Many times I’ve personally given up holdback, or a portion of it, to sell a car. Being a dealer myself, I say you never know what the 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, especially if the vehicle is old or has been challenging to sell.
The interest a dealer has to pay increases when a vehicle sits around for too long. Any dealer would be glad to give up holdback to get rid of an old car they haven’t been able to sell.
They may be shy of a unit bonus from the manufacturer, or the sales manager may be trying to hit his bonus. A manufacturer’s unit bonus for the dealership will be a lot more money in the dealer’s pocket than the holdback amount on a single car.
The point is that you never know what a dealer will do to sell a vehicle.
New Car Dealer Holdback Amounts for 2022
Below is a list of the current new car manufacturers and their dealer holdback percentages.
Some manufacturers listed below are no longer in business or phased out.
I left the last known holdback rates posted for college students and car industry professionals doing automotive research.
|Acura||2% of base MSRP|
|Audi||No dealer holdback available|
|BMW||No dealer holdback available|
|Buick||3% of total MSRP|
|Cadillac||3% of total MSRP|
|Chevrolet||3% of total MSRP|
|Chrysler||3% of total MSRP|
|Dodge||3% of total MSRP|
|Fiat||3% of total MSRP|
|Ford||3% of total MSRP|
|GMC||3% of total MSRP|
|Honda||2% of base MSRP|
|Hyundai||3% of total MSRP|
|Infiniti||1.5% of base MSRP|
|Jaguar||No dealer holdback available|
|Jeep||3% of total MSRP|
|Kia||3% of base MSRP|
|Land Rover||No dealer holdback available|
|Lexus||2% of base MSRP|
|Lincoln||No dealer holdback available|
|Mazda||1% of base MSRP|
|Mercedes Benz||1% of total MSRP|
|Mercury||3% of total MSRP|
|Mini||No dealer holdback available|
|Mitsubishi||2% of base MSRP|
|Nissan||2% of total invoice|
|Porsche||No dealer holdback available|
|Ram||3% of total MSRP|
|Scion||No dealer holdback available|
|Smart||3% of total MSRP|
|Subaru||2% of total MSRP (may vary in the Northern U.S.A.)|
|Toyota||2% of base MSRP|
|Volkswagen||2% of base MSRP|
|Volvo||1% of base MSRP|
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.
Foreign manufacturers like Toyota, Nissan, and Honda will calculate dealer holdback as a variable 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.
How to Calculate Dealer Holdback From the Base Invoice
To calculate the dealer holdback amount, you must multiply the percentage by the base invoice price before any factory-added options or packages.
|Calculate Dealer Holdback from Base Invoice Example|
|$38,579.00||=||Lexus base invoice.
(BEFORE manufacturer packages or options)
|2%||x||Dealer holdback percent. (BEFORE manufacturer options)|
|$771.58||=||Total dealer holdback amount|
How to Figure Dealer Holdback From the Total Invoice Price
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.
|Calculate Holdback from Total Invoice Example|
|$18,989.00||=||Nissan base invoice.
(BEFORE manufacturer packages or options)
|$680.00||+||Sports package invoice amount|
|$78.00||+||Invoice price for floor mats|
|$19,747.00||=||Total invoice price|
|2%||x||Dealer holdback percent. (Total invoice amount including options)|
|$394.94||=||Total dealer holdback amount|
How to Calculate Dealer Holdback From the Base MSRP
You must multiply the holdback percentage by the base Manufacturer’s Suggested Retail Price (MSRP) before the factory-added options and packages to get the dealer holdback amount.
|Figure Dealer Holdback from Base MSRP Example|
|$28,980.00||=||Toyota base MSRP. (BEFORE manufacturer packages or options)|
|2%||x||Dealer holdback percent. (BEFORE any manufacturer added options)|
|$579.60||=||Total dealer holdback amount|
Figure Dealer Holdback From the 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)
|Figure Dealer Holdback from Total MSRP|
|$34,000.00||=||Cadillac base MSRP|
|$3,500.00||+||GM sports package. (Manufacturer added option retail price)|
|3%||x||Dealer holdback percent. (Total retail price plus any added options)|
|$1,125.00||=||Total dealer holdback amount|
Walk Through on Figuring Holdback on a Vehicle
You want to find the holdback amount on a 2018 Ford F150 pickup. First, click on Edmunds and find the invoice price. You will also want to check the “See What Others Paid” section to see what deals are available in your local area.
Looking at the chart above, Ford has a holdback of 3% of the total MSRP. So, you multiply the full retail price 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, 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. When writing this example, no other dealer incentives or rebates are 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 at as close to $41,669.40 as possible; 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, which would be your new purchase price goal.