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What are Dealer Holdbacks?
Dealer holdback is a percentage of either the MSRP or
invoice price of a new vehicle that is repaid to the dealer by the
manufacturer.
What is the purpose of
Dealer Holdbacks?
The holdback is designed to supplement the dealer's cash flow and
indirectly reduce "variable sales expenses" (code words for sales
commissions) by artificially elevating the dealership's paper cost. Car manufacturer predetermines dealer holdbacks, they are rarely negotiable.
Knowing about the holdback will help you out in the negotiating process.
Let's take a look at how holdbacks work. When a dealer gets a car from the manufacturer,
they are purchased by the dealership at the factory invoice price. The dealership pays for
the vehicles when ordered.
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.
Holdback amounts can be hard to find out and you won't see a whole
lot of dealers going into their holdback monies.
Holdback amounts can be few percentage points of the invoice price, or a few hundred
dollars.
Just as manufacturers offer targeted rebates to customers, they also offer essentially the
same thing to auto dealers.
Manufacturer-to-dealer incentives are applied to specific models and they can amount to
thousands of dollars.
This type of vehicle-specific dealer incentive can vary from month to month and from one
part of the country to another. In some cases, manufacturers can offer
manufacturer-to-consumer cash rebates and manufacturer-to-dealer incentives on the same
vehicle.
Car manufacturers also add so-called volume incentives on cars. If dealers sell a certain
number of cars in a given month or quarter, they get a financial kickback from the
manufacturer.
If you're lucky, and your timing is right, a dealer may be willing to drop that extra
couple of hundred dollars in order to meet a quota and get that manufacturer incentive
cash.
Cash incentives also tend to get raised toward the end of the month or the end of a
quarter, since manufacturers want to report strong sales figures.
Manufacturers will push end of the month and end of Quarter sales with higher dealer
incentives often.
Only God and maybe the IRS will know how much dealers really pay for their cars. But the
more you know the more money you will save.
Negotiate each part of the car buying process separately:
The price
The trade-in
Financing.
Insurance
Extended Warranty
Don't let a salesperson talk you into trying to negotiate more than one transaction at a
time.
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