Dealer Holdback

Simply put, "dealer holdback" is money that an auto manufacturer pays a dealership to stock their inventory.

Dealers are given money to offset their inventory costs because most dealerships must borrow funds to pay for the cars that they have on their lot. The dealer's lender charges interest on the money borrowed, also known as floorplan, and it can be astoundingly high. One expert estimates the cost at "$3 to $20 per day per vehicle"[1], depending upon the dealership's interest rate.

The amount of holdback paid varies by manufacturer, but most automakers pay 1.5% to 3% of a vehicle's invoice price back to the dealer as soon as the vehicle is sold. The intention is to compensate the dealer for 60-90 days of inventory costs and encourage dealerships to order as many cars as possible. However, for some dealerships holdback can be a source of profit. If a dealership can sell their inventory quickly enough, the amount of money they spend on inventory financing can be less than the amount of holdback they receive. For fast selling vehicles, holdback can be a substantial profit source. Conversely, for slow-selling vehicles, holdback may not be enough to compensate the dealer for that vehicles inventory costs.

As far as consumers are concerned, it may be possible to negotiate a price below invoice provided the dealer can keep most of the holdback on a particular car. At the very least, it can be a bargaining chip in a negotiation.