If you have been doing some research about buying a new car you may have come across the term Car Dealer Holdback. An simplified explanation of the term dealer holdbacks and incentives, it is the secret money that the manufacturer pays the dealer when they sell you a car. The dollar amount of the dealer holdback is not published out there for the general public, at least not that I have been able to find. This holdback amount is printed on the invoice from the manufacturer, but it’s usually coded. Even if you knew how to find dealer invoice it would not include the car dealer holdback definition. It’s included in the total of the dealer factory invoice on a vehicle along with advertising charge and destination charge. It is not a car dealer trick.
New car dealers do not like to talk about or even acknowledge the existence of dealer holdback. When a new car dealer retails the car to a customer they can deduct the dollar amount of the factory to dealer incentives. There you have it, the secret money that the manufacturer pays the car dealer to sell you the new car. Some people consider it to be a car dealer scam, but it is done by the manufacturer.
Car Dealer Holdback, Pricing and Going Deep
There are times that the dealer will sell a new car for less than the dealers invoice for new cars and may even discount the new car the amount of the car dealer holdback below invoice. Dealers try to avoid this practice unless it is a car that they really want to get rid of because they have had it too long and or the floor-plan expense is more than they want to absorb any longer.
Other reasons that a new car dealer might discount a car below invoice the amount of car dealer holdback is to acquire a particular customer, possibly someone that lives close by and they can expect them to be a regular service customer. Depending on the manufacturer the new car dealer that is selling the car could be included in some type of sales contest. From time to time manufacturers run some type of sales contest that rewards the car dealer for selling a predetermined number of cars. At the end of the contest the manufacturer could pay the dealer a bonus per car for selling a certain number of cars. This bonus could be anywhere from a couple hundred per car up to couple thousand above and beyond dealer holdback and well below the factory invoice. These contests are kept out of the eyes of the public and usually only the top managers and dealer owners are aware of these contests.
Car Dealer Holdback – The Dealer Secret
These types of contests can be participated in by all dealers representing a manufacturer in a certain area, but they must sell enough cars to qualify. This can sometimes rule out smaller dealers. So you can see that sometimes a dealer would be willing give away some of that dealer holdback in order to sell a new car because of the factory to dealer incentives.
There is no hard and fast rule about car dealer holdback amounts, because it’s different with all manufacturers. I have seen the dealer holdback amounts range from 1% to 3% of the factory invoice. Most manufacturers are in that range, buy there are a couple of obscure brands that do not have any dealer holdback. These account for a very small number of cars sold in the market. Edmunds often shows these car dealer holdback amounts.
I hope these car buying tips has helped you to better understand why a new car dealer would sell a car below invoice. It’s that secret money called car dealer holdback.