What is Car Dealer Holdback? Use it to your advantage

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. Now, you can see dealer invoice prices for free with CarEdge’s Dealer Invoice Price tool.

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.

On other manufacturer invoices you’ll see dealer holdback spelled out in different ways. On some, 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!