The amount an auto dealership pays the manufacturer for a vehicle it puts on its lot. This amount does not always indicate the amount the dealership has paid for the car, however. Dealer holdbacks, incentives and other reimbursements can change that cost quite a bit.
The amount an auto dealership pays the manufacturer for a vehicle it puts on its lot. This amount does not always indicate the amount the dealership has paid for the car, however. Dealer holdbacks, incentives and other reimbursements can change that cost quite a bit.
The dealer invoice includes the price the factory charges for the car and the price of any optional accessories. The dealer must pay this amount to the factory. However, because of rebates, reimbursements and holdback, the actual cost of the car to the dealer may be less, therefore allowing the dealer to earn a higher profit or sell the car for less than its invoice price.
Dealer holdback is 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. Because dealerships can have hundreds of cars on their lots and in their showrooms, that can be a lot of money. The holdback is meant to cover some of the costs of keeping cars available for sale.
Other times, manufacturers may offer incentives, known as factory to dealer incentives, to get rid of an excess inventory of slow-selling cars. Once the car is sold, the dealer gets a rebate from the manufacturer. The dealer can pass some of this savings on to the consumer, but it still reduces the cost of the car to the dealer below its invoice price.
Of course car dealerships have to earn some profit to stay in business. Purchasers needn’t be concerned about grinding away every source of revenue to auto dealers. However, they should be aware of these profit-generating practices and not worry that the poor dealer isn’t making any money.