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 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.
Dealer holdback does not fall in the category of a new car rebate or dealer incentive and is not advertised to the public.
Some dealers will negotiate dealer 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 (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 very important when it comes to determining the cost of a new car, and figuring an offer to present to a dealer. Many people believe dealer holdback is a really 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 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.
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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 from the manufacturer.
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.
The 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 dealer. (Average of $650 per vehicle sold.)
$512,850 = Quarterly payment to dealer
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 manufacturers 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 new car cost on paper.
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Below is a list of the current new car manufacturers, and their dealer holdback percentages. Some of the manufacturers listed below are no longer in business or have been phased out. I left the last known holdback rates posted for college students and car industry professionals doing automotive research.
| Manufacturer | Dealer Holdback |
|---|---|
| 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 |
Take the guesswork out of trading your car.
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 section “See What Others Paid” to see what kind of deals that are going on in your local area.
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.
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