What is Dealer Holdback?

Hope this helps:

NEVER LET A DEALER CHARGE you for holdback! This is free money that the manufacturer (FORD) gives the dealer.

In fact, if you know how much holdback is on a car, it should give you a great negotiating point as you know the dealer is going to make that much money on the car even if they sell the car to you at "cost" (Invoice).

If the car cost $20,000 for the dealer to buy from Ford and it has a 2% holdback on it. The dealer will make $400 on the car even if they sell it to you for $20,000. If they pass this "holdback" cost onto you as a buyer, then they will basically double their money, making $800 instead of $400.

Now, you need to let the dealers make some money on the car, but always keep in mind that they will make the holdback money no matter what.



Here is the definition of holdback:

An allowance, usually between 2 and 3 percent of MSRP, which manufacturers provide dealers, frequently as a credit to the dealer's account. A holdback allowance may allow the dealer to pay the manufacturer less than the invoiced amount. Therefore, the vehicle could be sold to you at cost while permitting the dealer to receive a small profit. Holdback is also known as a pack

Although sometimes listed as a dealer charge or fee and passed on to the consumer, dealer holdback is actually money that the car dealership is paid by the factory.

The manufacturer does not just let the car dealerships have some cars to hold until they sell. The dealer actually has to buy the cars from the manufacturer. Since dealerships can have hundreds of cars, that can be a lot of money that the dealer has to pay. The dealer obtains loans in order to get the cars. The holdback is money that the manufacturer ends up paying the dealer that basically covers the interest of those loans in order to make the process cost effective for the dealer.

Let’s say the MSRP of a certain car is $18,000. The holdback allowance on that car is $360. The factory pays this amount to the dealer. Sometimes with holdback, it can allow the dealer to sell the car below invoice but still make a profit.

It is not uncommon for the holdback to appear as a dealer charge to the consumer. However, this should not be. Since the factory is paying this allowance to the dealer, it is not a fee that should be passed on to the potential car buyer. Listing holdback as a fee simply pays the dealer that allowance twice.

When shopping for a car, it is important to be informed. If you know the holdback on a particular car, it can help you to know the amount of profit the dealer can make on the sale, which in turn can help you to make the fairest offer on the purchase of that car.

The dealer's invoice from Ford also includes an FDAF (advertising fee) and fuel charge that you do not see on that price list.

FDAF varries by region, but in my case (N.E.-WI) it was $486.00 and the fuel charge was $45.60 ... these are part of the "Real Invoice" and costs the dealer must pay. Then there is the dealer "Service Fee" which at my dealer was $129.00 (reasonable).

So with these extra fees, my actual $100 over invoice sale was $760.60 over what you see on that price sheet. It was still a $100 over "real invoice" deal + $129 Service Fee.

Doug

Ford pays 3% holdback to dealers on each new vehicle. Most manufacturers pay their dealer body a similar amount of holdback.

As noted above, dealers usually have hundreds of cars on the lot for sale, and they are not paid for in cash by the dealer - the dealer borrows the money from a bank. Holdback is to cover about 90 days of interest, which is the average time a car stays on the lot before it is sold, so that line on a dealer's income statement is typically about even (no profit and no loss). Therefor, holdback is not profit to the dealer. It simply covers the cost of having a couple hundred shiny new cars on the lot to offer to the public.

A car that sits unsold for more than 90 days starts to errode dealer profits quickly as the holdback would be used up. A fresh car from the factory that sells immediately (i.e. a special order) nets the dealer all the holdback as extra profit on that car. However, I cannot stress to you all enough that holdback (when viewed as an aggregate for the entire inventory at the dealership) is not a profit line and the dealer is entitled to collect it, IMO.

FDAF and fuel charges work in a similar way, in essence. Ford charges the dealers this amount, so it is passed on to the customer as a legitimate cost to the dealer.

It is one thing to be an informed consumer, yet something entirely different to try and nickel and dime a dealer out of business. Everyone deserves to work for a company that can earn a reasonable profit. Automobile costs are the absolute most transparent of any industry I can think of. Why don't we get to know the real costs of everything offered for sale in our economy? Why just cars?

Five Oh Brian said:

Ford pays 3% holdback to dealers on each new vehicle. Most manufacturers pay their dealer body a similar amount of holdback.

As noted above, dealers usually have hundreds of cars on the lot for sale, and they are not paid for in cash by the dealer - the dealer borrows the money from a bank. Holdback is to cover about 90 days of interest, which is the average time a car stays on the lot before it is sold, so that line on a dealer's income statement is typically about even (no profit and no loss). Therefor, holdback is not profit to the dealer. It simply covers the cost of having a couple hundred shiny new cars on the lot to offer to the public.

A car that sits unsold for more than 90 days starts to errode dealer profits quickly as the holdback would be used up. A fresh car from the factory that sells immediately (i.e. a special order) nets the dealer all the holdback as extra profit on that car. However, I cannot stress to you all enough that holdback (when viewed as an aggregate for the entire inventory at the dealership) is not a profit line and the dealer is entitled to collect it, IMO.

FDAF and fuel charges work in a similar way, in essence. Ford charges the dealers this amount, so it is passed on to the customer as a legitimate cost to the dealer.

It is one thing to be an informed consumer, yet something entirely different to try and nickel and dime a dealer out of business. Everyone deserves to work for a company that can earn a reasonable profit. Automobile costs are the absolute most transparent of any industry I can think of. Why don't we get to know the real costs of everything offered for sale in our economy? Why just cars?

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Very informative post...Thanks

Five Oh Brian said:

Ford pays 3% holdback to dealers on each new vehicle. Most manufacturers pay their dealer body a similar amount of holdback.

As noted above, dealers usually have hundreds of cars on the lot for sale, and they are not paid for in cash by the dealer - the dealer borrows the money from a bank. Holdback is to cover about 90 days of interest, which is the average time a car stays on the lot before it is sold, so that line on a dealer's income statement is typically about even (no profit and no loss). Therefor, holdback is not profit to the dealer. It simply covers the cost of having a couple hundred shiny new cars on the lot to offer to the public.

A car that sits unsold for more than 90 days starts to errode dealer profits quickly as the holdback would be used up. A fresh car from the factory that sells immediately (i.e. a special order) nets the dealer all the holdback as extra profit on that car. However, I cannot stress to you all enough that holdback (when viewed as an aggregate for the entire inventory at the dealership) is not a profit line and the dealer is entitled to collect it, IMO.

FDAF and fuel charges work in a similar way, in essence. Ford charges the dealers this amount, so it is passed on to the customer as a legitimate cost to the dealer.

It is one thing to be an informed consumer, yet something entirely different to try and nickel and dime a dealer out of business. Everyone deserves to work for a company that can earn a reasonable profit. Automobile costs are the absolute most transparent of any industry I can think of. Why don't we get to know the real costs of everything offered for sale in our economy? Why just cars?

Click to expand...

While I agree with most of this post, in this person's case, the dealer is actually charging him for holdback. IMO that should not happen. The dealer gets the holdback from Ford no matter what. The customer should not be charged holdback as well. The dealer is double dipping here. Espoecially on a brand new car that hasn't sat around for anywhere near 90 days.

Dealers are entitled to make a profit just like any business out there. But it is up to consumers to be informed so that they can't pull stunts like this!

RxDawg, assuming the car you were quoted on was a V6, with Auto, 3.31 rear, and security system, the way I figured the numbers out was as follows:

Invoice - 21,078
Options - 1554 (Auto, 3.31, Security)
Destination - 850

And the part you don't see on Edmunds.com:

Fuel Charge - 46.50 (You didn't think that first tank of gas was free, did you?)
FDAF Assessment - 450 (What FoMoCo charges, per unit, to the dealer to have Dennis Leary interrupt your football game with corny truck commercials)

Total Invoice Price - 23978, or roughly $100 less than you were quoted on the car.

How that breaks down for the dealer:

Salesman's commission - $100 (Minimum deal. May be less depending on dealer, but most are paying $100 minis now)
Dealer profit - $718, or the holdback. Because you're ordering and not buying an in stock unit, his cost to carry the car on his floor plan is negligible, so the dealership will get to keep most of the holdback.

Now here's where things get sketchy...

Some unscrupulous dealers will add a bunch of BS charges to the car, for things like VIN etching in the glass, nitrogen filled tires (seriously? our atmosphere is 78% nitrogen), dealer prep (which the service department gets paid for in the PDI that Ford pays them), outrageous documentation fees, etc. This is all BS and you absolutely should NOT pay it. Your buyer's order should look like the below:

Sales Price - 24,100
Rebate - (1,000) *may appear after taxes are added, depending on GA law
Final Sales Price - 23,100
Sales Tax - 1617
Title, Registration, Documentation - ~$200 (If it's more than this, make them justify it)

The other place a dealer will make its money is in the "Business Manager"'s office. If you finance with the dealer, they will make $100 for writing the contract if they contract you at buy rate (the rate you're actually approved for with the lender) or the points if they contract you higher (let's say you're approved at 5% and they contract you at 9%, that 4% is profit for the dealership). Get pre-approved for your loan and see if the dealer can beat it. They oftentimes can. My wife got a point better through the dealer on her Expedition than she did with her bank. That she works at. Managing a branch.

Also, they make money on ALL the products sold in that office (warranty, GAP insurance, credit life/disability insurance, etc.) Your best bet is to get a warranty quote online on an ESP warranty, put enough cash down where GAP insurance isn't necessary, and skip the insurances. We were quoted something like $1700 on a 5/75 warranty on her truck, but online found it for $900. We showed the dealer, got the better price, and rolled it into the deal. I've had deals when I was in the car business that were $800 losers on the front end become $3500 winners on the back end. It sucked for me, because I only made a minimum commission on the deal ($50 at the time), but was great for the dealer. It really sucked, because Murphy dictated those were the deals where you'd get the customer at 10 AM on a Saturday, skip lunch, and they'd wrap up around 7 PM and all your friends pushed out 2-3 cars that day while you worked all day for a minimum deal.

Lastly, treat any trade in as a separate transaction. Get honest appraisals from Intelliprice, KBB, NADA, Edmunds, etc. and use that as a guideline. Your car isn't in "excellent" condition. Nobody's is. Go with Fair-Good pricing, don't expect minor adds like power seats to really mean anything, and use that as a guideline. If the dealer appraises your car for way less than what the guides are showing you, ask why, and get him to justify it. They can pull up auction records around the country showing what cars like yours are going for wholesale. If he can buy 2004 V6 Mustangs for $3,000, don't expect $5,500 for yours. Disregard all emotional attachment you have to your car when trying to figure out what it's worth.

Your dealer is dead on with his price quote as best as I can figure it. And it's a very fair deal for both of you. You're buying a "hot" car at a good price. And your dealer is making a fair profit on it. Unfortunately, markup in new cars is minimal, so you don't see the huge discounts that you may hear about, especially on a new model year that's a substantial change from the previous year. Even the $37K Premium GT I'm about to order only has about $2400 of markup, or roughly 6%.

People lie about the price they pay for their cars and their houses. They say their houses cost more than they paid, and their cars less. Keep that in mind when discussing car deals with people.