Dealer holdback is an amount of money paid to a car dealership from the manufacturer on each new vehicle they sell. Every automaker offers a different amount, but typically, dealer holdback is a percentage of the MSRP that ranges between 1% and 3%. Dealer holdback is predetermined for each vehicle on the dealer’s lot, and it’s essentially whatever the manufacturer decides to offer.
Understanding what dealer holdback is and how you can use it to your advantage can be helpful in negotiations.
Today, we’re going to dive deep into dealer holdback and explain how you can use it to your advantage when buying your next car
Dealer Holdback won’t be on a vehicle’s window sticker
Dealer holdback is often considered an “invisible” profit line for the dealership. That’s because it will appear on the dealer’s invoice but does not show up on the vehicle’s Monroney label.
As a car buyer, the only way you’ll know what the dealer’s holdback is is to get your hands on the dealer’s invoice for the vehicle. Each automaker lists the dealer holdback in different ways on the vehicle’s invoice, however you can usually find the dealer holdback amount by looking for “DH” and then some numbers near it on the invoice.
You’ll never see “dealer holdback” on a vehicle’s window sticker since it is not part of a vehicle’s selling price. Remember, the window sticker lists out the price of all components of a vehicle, but it doesn’t tell you what a dealer paid for that vehicle, nor what incentives or extra cash the manufacturer gives to the dealer.
The Function of Dealer Holdback
Where did dealer holdback come from? That’s a great question. As information about dealer invoice pricing became more readily available, car buyers would frequently ask dealers to sell them vehicles at invoice price (or near it). As more and more dealers sold their inventory at invoice price (or sometimes even below it in an effort to hit their volume-based manufacturer incentives), they realized that their once high “front-end” gross profit margin was shrinking. Customers wanted to (and still want to) see a dealer’s invoice so that they know they are getting a fair price, however dealers didn’t want to keep eating into their front-end profit margins. What could possibly be the solution? Dealer holdback.
Dealer holdback essentially “came to be” because car dealers realized they needed to share their invoice price with consumers to convince them that they were getting a fair deal, only for the dealer to then make x% profit from the “holdback” from the manufacturer. In the simplest terms possible, dealer holdback is simply hidden profit for the dealer that exists to convince car buyers that they are getting a car deal “at invoice price” and the dealer “can’t go any lower.”
Making sense?
Before the proliferation of dealer’s sharing invoices with customers, there was no need for dealer holdback, however it’s fairly obvious why it’s as important as it is now for car dealerships.
Use Dealer Holdback when you negotiate
When you are negotiating a new car deal we strongly recommend getting your hands on the dealer’s invoice. We’re working on compiling the world’s only repository of dealer invoices thanks to CarEdge community members like yourself who submit them to us, but that’s going to take some time.
In the meantime, the only way you can get a dealer’s invoice is to ask them for it at the dealership. When you do get your hands on a dealer’s invoice you can analyze it to try and find the dealer holdback amount. Look for “DH” on the invoice with a few numbers beside it.
For example, in the screenshot below you see “DH” with “284” next to it. That is from a Mazda invoice, and that tells you that the dealer holdback is 284. A CarEdge member submitted this invoice to us for a livestream a few weeks back, and we did an entire video breaking down how to read the invoice. If you’re thinking about buying a Mazda, that video is a must watch.
On other manufacturer invoices you’ll see dealer holdback spelled out in different ways. For example on the below Toyota invoice you’ll see it explicitly says “Dealer receives a reserve of …” The dealer holdback is a portion of that reserve.
How can you leverage this in your negotiations? It’s relatively simple. Ask for the dealer to dig into their holdback a bit and give you a greater discount. There isn’t too much more to it than that. You simply need to know what to ask for to enable that discussion!
In the Mazda example, the hold back was 00284. What was the actual dollar amount of dealer hold back?
In that case the holdback is $284, Carleton.
“…they realized that their once high “front-end” gross profit margin was shrinking.”
“Once HIGH”? The difference between MSRP (“Monroney Label”) or ‘sticker’ price and dealer invoice for most car dealers is all of 17% or so. 17%.
On a transaction of often more than $30 or $40K or more. Selling a vehicle that may have been sitting on the lot for months, beyond any floor plan support provided by the factory. In a dealership that has to keep the lights on, pay employees, provide benefits, purchase and maintain service equipment, and all other of the costs a business incurs. Zach, when you bought a house, or rented an apartment, did you demand to know what the seller’s costs were? When you buy a lawnmower from Sears, do you demand to know what they paid for it? If you sell your home, do you make sure to tell buyers what you paid for it? Presenting holdback…all of 3% (less tires; there is no holdback on the price of tires in such a transaction)…as some sort of ‘secret’ profit dealers make is utter nonsense. I can think of no other big ticket consumer item where buyers feel they have some right to know how much profit the seller makes when they sell it. I suppose I wouldn’t last a day as an auto dealer; if you or anyone else demanded to know what my cost was for a vehicle you wanted my response would be simply ‘none of your damn business’. Because it isn’t any of your or anyone else’s business. Like any other free transaction, you get the price; if you’re willing to pay that price for that vehicle, you buy it. You aren’t, you don’t. And no, I’m not, nor have I ever been, a dealer. I have been in the automotive fleet business for more that 45 years. And I’m sick of people like you who tell their audience they have some right to know what dealers make when they sell vehicles.
We definitely don’t see eye to eye on this, Robert, but thank you for reading and commenting.
Great reply to Robert.
You do not need to “guilt trip” people who bargain in good faith. It is expected. Your reasoning is akin to double paying on your yearly 1040. All that is need is yo add the cost of this war or that social program.
The wonderful thing about dickering about the price is that at any time, anyone can walk away from the table with no hard feelings if the price is not right.
BTW please leave the ad hominem “I am sick of people like you…” from your next post. It is unnecessary.
Robert dealers do have dealer hold back. I worked for a dealer for some years and I know they have dealer hold back. We used to dip into holdback if it was absolutely necessary but often tried not to do that. That’s why now most sales reps don’t work on commission becaise there is very little profit. Where the dealers make up their costs and profits is by hitting their volume incentives. I know the dealer I worked at if we hit our volume incentive the sales reps received a bonus and the dealer could make upwards of 30k or higher
Hi Zach. I’ve used holdback in a negotiation before, and was successful. However, I’d like to ask a little more about how this works. I’ve heard that holdback profit for the dealer can also be influenced by how long the car has been on the lot (or, more specifically, by the number of days since the vehicle was obtained from the manufacturer). The way this was explained to me was that the dealer doesn’t really “own” the vehicles on his lot. In effect, the vehicles are either leased or loaned to the dealer from the manufacturer. From there, I’m not sure how time plays into this. Perhaps the “wholesale finance reserve” seen above in the Toyota dealer invoice has something to do with this. Is there any truth that the longer the vehicle sits on the lot, the greater (or lower) the profit from holdback?