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Dealer holdback

Car shoppers should know about the dealer holdback. Bankrate explains it.

What is a dealer holdback?

A dealer holdback is an amount that auto manufacturers provide to auto dealers for each new vehicle that is sold. The holdback is usually a percentage of the invoice price or the manufacturer’s suggested retail price, or MSRP.  A typical holdback is 2 percent to 3 percent of the MSRP.

Deeper definition

With a dealer holdback, a customer can buy a car for less than the invoice price and the dealer can still make a profit. Whether the manufacturer computes the holdback using the invoice price or the MSRP depends on the car. This allowance reduces sales commissions and supplements the dealer’s cash flow by artificially raising the dealership’s costs on paper.

The dealer holdback varies depending on how long the dealer retains the car, and it helps dealers to advertise cars at invoice-price sales. The holdback reduces to zero after a given period, usually 90 days, so dealer holdback is at its maximum when a car is first delivered to a dealer.  The dealer will not receive the holdback if the vehicle is bought after the holdback window expires.

Some car buyers try to use the dealer holdback to negotiate a lower price. But determining a dealer’s real net cost is hard to do, even for experienced car buyers.

Shop like a pro. Learn these tips to outsmart your car dealer.

Dealer holdback example

A Hyundai dealership takes delivery of a 2018 Sonata SE model with an MSRP of $23,140. The manufacturer offers a dealer holdback of 3 percent of the MSRP, which comes to $694.20. The car sells before the 90-day dealer holdback offer expires, so the dealership gets the holdback.

Use Bankrate’s auto calculators to figure out a down payment, early payoff strategy or the cost of an auto loan.

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