Dealer Holdback
The dealer holdback is a part of the dealer invoice or MSRP that the dealership charges back to the manufacturer. Manufacturers typically return the percentage of money withheld every quarter, but this can vary depending on the agreement.
New car dealer holdback became common just a few years ago. They are used to inflate invoice rates to increase distributor earnings. This is done mainly by decreasing the gross profit margin on the sale of a vehicle. As a result, the salesperson does not receive a commission or a percentage of the dealer’s holdback amount.
Another explanation for the popularity of dealer holdbacks, which are typically two to three percent of MSRP, is that they encourage dealers to make exclusive offers while still making a profit. Dealers will legally advertise cars at invoice prices before recouping hundreds of dollars later.
Although it’s helpful to be aware of dealer holdbacks, you’re unlikely to be able to use them in your negotiations. It’s nice to be conscious of them. However, dealers cling to them. You may indirectly use them to negotiate a lower price.