What Is A Dealer Holdback?
A dealer holdback is the payment dealers receive from the manufacturer on each new vehicle they sell. The amount is typically a percentage of the Manufacturer’s Suggested Retail Price (MSRP) or the Invoice Price.
There is no fixed price on the amount a dealership earns in Dealer Holdback. Factors such as the make and model of the vehicle play a role in determining the amount. Usually, dealers can get between 0% to 3% of the MSRP.
The dealer holdback is a profit line for dealerships. Automakers and dealers have an agreed percentage which the automaker returns to the dealer after each new vehicle that the dealer sells. The purpose of dealer holdbacks is to help dealers offset operational costs such as rent, salaries, and interest paid to finance inventory.
Dealer holdbacks usually range between 0% and 3% of the vehicle’s MSRP. The Manufacturer’s Suggested Retail Price (MSRP) is the price that the automaker recommends a vehicle should be sold for at the point of sale. It takes into account all the costs associated with making the car and also includes the dealer holdbacks. Because the dealer holdback is included in the MSRP, a dealer can sell a vehicle below the Invoice Price and still turn a profit.
Some buyers often try to use dealer holdbacks as leverage to negotiate lower prices on their new car. To do that, a buyer must get their hands on the dealer’s invoice for the vehicle since the window sticker price never includes incentives a manufacturer pays the dealer. On the invoice, dealer holdbacks could be stated explicitly or not. For instance, in some invoices, it is written as “DH” followed by the amount, while in others, it is stated that the dealer would receive a reserve of X amount. With this information, buyers can ask for a discount.
The dealer holdback percentage varies depending on the vehicle manufacturer and model. There are four ways different methods a manufacturer could adopt for holdback:
- Base Invoice – Holdback is calculated on the base invoice, excluding added options.
- Total Invoice – Holdback is calculated with invoice price and other options included.
- Base MSRP – Holdback is calculated on MSRP, excluding added options.
- Total MSRP – Holdback is calculated on MSRP with added options included.
Dealer Holdback Example
A vehicle has a Base Invoice dealer holdback of 2%. To calculate the amount, you would multiply the base invoice price by 2% without adding any factory-added options or packages.« Back to Glossary Index