• Jul 2, 2011
When you buy beef jerky, some Bridgestones or a Bulgari, you don't spend six hours researching how much the retailer paid for the product. For that matter, when you buy a building, you don't ask how much the builder put into it. When it comes to cars, though, consumers can never be deterred from scrutinizing the dealer's actual costs. Hence the spotlight shined on dealer 'holdback,' which is a sum of money paid to a dealer by the manufacturer after a car is sold.

According to TrueCar, holdback makes up anywhere from one to three percent of the price of a car. In the most nefarious interpretation, holdback is a built-in rebate that spikes the dealer's invoice price. If a manufacturer wanted $20,000 from a dealer for a car, knowing that it might need to pay a two-percent holdback once the car is sold, the manufacturer makes the dealer pay $20,400 for the car. That $20,400 is now the official invoice price that appears on the breakdown. Once the car is sold, the dealer gets a check for $400.

Holdback is an inexact number. It could be pegged to the base MSRP or the configured invoice or the configured MSRP, for instance. But it can allow the dealer a number of follow-on benefits, including being able to sell a car at invoice price and still make money. Not that a dealer would let it go for invoice, and $400 isn't much on a $20K transaction, but you get the point. TrueCar has a table of holdback percentages for various manufacturers, but be as wary of having too much information as too little.


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  • 80 Comments
      SDAutoExaminer
      • 3 Years Ago
      I don't think that any reasonable person would begrudge a dealership for making a profit. The sad truth is, however, that dealerships have a bad reputation that was EARNED over DECADES of unscrupulous and shady business practices. Of course the average Joe is going to assume they are being ripped off. While the overwhelming majority of car dealers and their sales staff may in fact, be on the level, they find themselves in the unenviable position of paying for a checkered past. Further, to try and draw a comparison between "Buying beef jerky", and making a HUGE financial decision such as buying a new car, does not make much real world sense. Saving 5% on the purchase of a $35,000 automobile by being diligent and shopping around is not quite the same as paying an extra $.25 to snap into a Slim Jim. Rather than admonish and mock consumers for their actions, we should be educating them (as this article does to some degree) and encouraging dealers to be honest and forthright in their practices. It took a long time for the car sales business to earn a bad rap, it isn't going to go away overnight.
      dave and mary
      • 3 Years Ago
      Very interesting article. It is with great interest that I read it. I USED to be a car saleman. Very succesful one. But way too much time away from home ... and you are always trying to think of "that next sale" - even on your days off. So I quit. But one of the things I learned is this: customers focus TOO MUCH on price. Hence, they end up with a vehicle they don't like; or isn't meeting their complete satisfaction. I tried to get people to focus on the CAR first; then the price. Sure - it made me look like a pushy saleman. But, done properly, you SHOULD do it that way. Find out what you like, irregardless of price, then negotiate YOUR price. If they don't give it to you - leave. Stop worrying about who paid what for the car; or how much the dealer is making.
      RICK
      • 3 Years Ago
      If a dealer had to exist on new car sales alone. They would all be out of business. Why do you think labor rates are so high in the Service Department? Used Cars, Parts, and Service pay the bills. If new cars had the same profit margin, percentage wise, as the Parts Department. They would really be a money making machine. A new $30,000 car will cost you about $300,000 in the Parts Department.
      black republican
      • 3 Years Ago
      To tell ya the truth, I think consumers wouldn't mind paying a little more IF THEY WEREN'T GETTING JERKED AROUND. I don't want my dealership to go out of business. I know they need to make some profit. Just let us know how much you are getting. If we have to guess - we are gonna be less happy about it.
        cynicalrick
        • 3 Years Ago
        @black republican
        Need to know? When you buy a pair of shoes how much did they make? When you buy a quart of milk how much of what you paid was profit? How about your last cell phone or tv? Do you know? I'm all for fixed price selling when it comes to cars, and how much they make is nobodies business but their own, just like every other business.
          billy bob
          • 3 Years Ago
          @cynicalrick
          Here here. Well stated. Frankly, it's none of anybody's business what a dealer makes. Just try once to walk into a grocery store and ask them what they pay for a dozen eggs, and then make an offer. Oh wait, the price they posted is not the final price. They are actually allowed to add tax and nobody gets mad about that! What a place we live in.
        nardvark
        • 3 Years Ago
        @black republican
        I just don't buy my cars from the dealers who jerk me around. A lot of the older guys try when my wife and I go in (we're under 30) because they assume that anyone who is young can be pressured. Maybe they're usually right, but it's an instant non-starter for us and we just take our business elsewhere. I've found that about 1/3 of dealers are decent to work with, and it's usually the smaller places that are better. The big flagship dealers have to pay for their giant glass atriums somehow.
      BC
      • 3 Years Ago
      I am reminded of the line in the movie 'Broadcast New' (paraphrasing), "Way to blow the lid off nookie." 'Consumer Reports' has emphasized the importance of accounting for dealer holdback when making a purchase offer for what, three or more decades now? And rather than view it as something sinister, it could also be interpreted as an additional incentive for the dealer to sell, so he gets his money back. The dealer's quote should include all his costs of doing business; if he insists on adding a fee on top of that quote that's not required, go elsewhere; these days once you've narrowed down your choice of vehicle you can negotiate with dealers by email. If they know you're serious about buying, aren't taking up a lot of their time and effort, and won't settle for any monkey business, they may be straight with you. In 2007 I wasn't able to find the vehicle I wanted locally and arranged to buy it from a dealer in a neighboring state; accounting for manufacturer rebates I paid $100 over what Edmund's claimed was the invoice price, several thousand less than what Edmund's claimed was "True Market Value(R)". If they made a few hundred more on the holdback, fine.
      Richard
      • 3 Years Ago
      I take issue with the first few lines of the story. I DO research the best possible deal on every major purchase i make. I bought a house in 2007 and it's worth more than I paid. How did I do that? Well, I looked for two years. People SHOULD ask how much a building cost to build when buying it. Maybe if they did the country wouldn't be choking on a pile of bad loans by idiots who paid too much for houses. People complain they are broke, can't afford stuuf, but meanwhile they spend 3 hours a day watching trash TV. Maybe if they spent that time reseaching the best deals on stuff, like I do, then they would be well on their way towards retirement, like I am at age 37. Keep watching the Kardashians idiots. And if you try to raise my taxes to pay for your ignorance me and my money are moving to Panama.
      mikemaj82
      • 3 Years Ago
      only the sales manager knows the true value of the car. no customer will ever know what the dealer paid for that car.
      Luna
      • 3 Years Ago
      If you want some of the holdback money. You need to buy a damaged unit, a DEMO, or an oddball unit that has been in stock for over a year.That is the only way a dealer will give up any portion of it.
        jakiek159
        • 3 Years Ago
        @Luna
        no its not.. thats called Write down or / push pull. Rarely do the Dealerships get ingo hold back unless its to put a unit on the Road.
      transam
      • 3 Years Ago
      I worked as a car salesman and lease manager between 1999 and 2008 for two major carmakers. We knew about the holdback but it was not part of our commissionable profit, so it helped the dealer but did nothing for us on the "floor". I worked very hard to be honest and open with my customers (as did many others, a few bad apples always spoil the bunch) but as the internet age increased over the years, it became more difficult and less enjoyable to sell cars. Customers were always convinced they were getting ripped off even when we would sell a car only a few hundred bucks over invoice. It became hard to make a living. I find it sad that consumers want to buy a car at invoice or otherwise feel ripped off. As Ramsey said people don’t try to figure out the cost of other large purchases, it is taken for granted that a profit must be made. Dealers and salespeople have a right to make a decent living and make a reasonable profit when selling a car. The last time I checked dealers were not non-profit organizations. Customers want service but don't want to pay. Consumers have no problem buying designer clothes and pay as much as 400% mark-up but feel ripped-off when buying a new car (a very complex purchase that requires knowledgeable staff) at 2 or 3% mark-up.
        jessesrq
        • 3 Years Ago
        @transam
        Transam - How do you feel about the car buying experience vs. leasing experience? I always lease cars for my company, but I am less confident in the "deal" since it is not easy for the consumer to calculate what is fair. For a purchase it should be simple: remove a trade-in from the equation, remove all of the dealer add-ons, figure in a reasonable profit over the invoice, and work out a good finance rate. My local and very friendly Mazda dealer quoted me at $450/month + tax on my most recent car, a loaded Mazda3. He cried about the car being new (at the time) and in high demand, having a high money factor, etc. I drove an hour and leased the same exact car for $375/month incl. tax with no negotiation required. It was hard not to feel like the first dealer was trying to rip me off.
          transam
          • 3 Years Ago
          @jessesrq
          jessesrq - The finance vs. lease debate was a daily part of work. Unfortunately there is not one simple answer. As a general rule of thumb someone who desires/needs to change vehicles often (3 years or less) or does very high mileage, leasing is often the more cost effective choice. However, bear in mind that while the simple calculation for a lease (total price – residual value / number of months + taxes), interest is calculated on the total price before the residual is taken away, so you are in fact paying interest on a portion of the car (the residual value) that is not part of the monthly payment. That is why we always told lease return customers to either buy or lease a new car, not re-finance their lease return. It is always a good idea to make sure that the total price on the lease contract is the same as if the car was to be financed. Get quoted the finance price first (with total selling price) and then ask for a lease payment, make sure the selling price is the same.
        MoggSquad
        • 3 Years Ago
        @transam
        If that's the case, they should sale a car at a fixed price like retail stores (best buy etc) do with their products. For every person who gets a car at invoice Im sure there are plenty more that get car at MSRP with un-needed addendums added on. I could never sell cars with the conscience I have.
          Steveo
          • 3 Years Ago
          @MoggSquad
          You are a dumb ass that's why
        Ryan Comerford
        • 3 Years Ago
        @transam
        I sold FLM's for about a year and this post is the truth. There would be times when customers would make it known that they expected the dealership to make little to no money on the transaction. The sales manager I worked for would show customers invoices when we would be down to 300 or 400 above cost because many are convinced they're being ripped off. Some would complain that they were still that much above invoice. I'll never forget one customer literally said to me "What about hold back? There's gotta be more money built in to that, that you can knock off." Those kinds of customers is what made me leave the business. The amount of pressure placed on sales people because of the way these customers do business is ridiculous. Let alone you feel like you're wasting your time since you're only making a mini on those cars. It was no fun at all.
          Chris
          • 3 Years Ago
          @Ryan Comerford
          Exactly. You cold sell 13 cars in a month and make after taxes less than $1500/mth. People keep asking for more. Even when u get to the point where it's a mini. I just never got it. These same people buy houses where the seller makes tens of thousands of dollar off them, and the real estate "agent" makes $10000+ commission. It's a joke.
          jeepmover
          • 3 Years Ago
          @Ryan Comerford
          And that same customer that wants all of the holdback will be the one that kills you on surveys, drinks every drop of coffee in the building, nitpicks any blemish on the car no matter how faint, continuously talks about how he is getting a better deal at another dealer, and demands to be put ahead of everyone else when service is needed. Don't forget the free hat, key chain, and free first oil change! Customers call salespeople liars. Truth is, many customers lie from the minute we meet them. They forgot about the major accident their trade was in. Their credit union will give them 0% financing for 12 years. There is always that "other" dealer that is giving them $4000 more for their trade. It is not true in all cases, but our saying is "buyers are liars"!
        Anonimouse
        • 3 Years Ago
        @transam
        The only value every car dealership had that ever sold me a car was that they had a car to test drive and that they were able to hand me the keys after I paid. EVERY car salesman starting when I went with my father at age 16 knew less than I did. I once experienced them "holding my keys to show that I was serious" for 30 minutes after I told them that I did not like the deal. Salesman have outright lied to me. All I need from the salesman is what is your best price and what can you give me for my trade in. In the past, getting the price from the salesman was like pulling teeth. Now I get quotes via the internet, so that part of the pain is over. Now, the only pain involved is if I want to trade in my car. I am sorry, but I have no sympathy for car salesman.
        Hartwig
        • 3 Years Ago
        @transam
        I have two comments on your post. 1. Trying to get the lowest price possible on a purchase is not unique to the car sales industry. Today consumers are looking for the cheapest price on everything from electronics to food. Even employment today is all about getting the best price, each year my salary is compared against the industry average to decide about raises and bonues etc. This is a good and bad thing. 2. People will inherently feel like they are competing against a salesman. And this is because the price is negotiable. Consumers believe rightfully so that the sales persons job is to get them to pay the highest price possible up to a point. This price is determined like any other consumer good, by supply vs. demand and consumers know this. I am currently looking for a WRX, i emailed a dealer about the price they were wiling to take on the car and it was about 500 under MSRP, i understand they are setting that price because demand has outreached supply, a few months ago it was the inverse and i could have bought the car for much less. I chose not to buy the car and wait for the supply to increase like i know it should. Knowing all of the information available about a large purchase is exactly how we should make decisions. It does keep the consumer from potentially getting taken. This doesn't have to be a bad thing, know that every customer who comes through the door could potentially know your invoice price, be honest about why you are selling it at the price you set, and let them make the decision about whether they want it at that price or not.
      • 3 Years Ago
      [blocked]
      • 3 Years Ago
      [blocked]
      Nick Culp
      • 3 Years Ago
      I wanna drive! But my momma won't let me till I stop peeing on the seats.
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