Dealer Holdback
(Definition)- 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.
More about Dealer Holdback
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.
