The Car Buying Guide for Extreme Savers









The Hidden Profit Dealers Don't Want You to Know: Holdback

Have you ever seen a car ad where a dealer is "giving away" cars at invoice price? You may have wondered how a dealer could sell their cars at invoice and still stay in business.

Well, not only could that dealer stay in business, they were probably making a killing on their vehicles - even when selling them at invoice price.

One reason is due to a payment called holdback, which the dealer receives from the manufacturer for each car they sell. The holdback is paid on a quarterly basis and is usually equal to 1 - 3% of the total price of the vehicles. For example, if a car has an MSRP of $25,000 and there is a holdback of 3%, then the dealer will receive $750 from the manufacturer whenever he sells that vehicle.

A dealer could run a highly profitable operation simply off the holdback they receive. Although not all manufacturers offer holdback, most do and here is what each one currently offers:

MakeHoldback Amount
Acura 2% of the Base MSRP
Audi No holdback
BMW No holdback
Buick 3% of the Total MSRP
Cadillac 3% of the Total MSRP
Chevrolet 3% of the Total MSRP
Chrysler 3% of the Total MSRP
Dodge 3% of the Total MSRP
Ford 3% of the Total MSRP
GMC 3% of the Total MSRP
Honda 2% of the Base MSRP
Hyundai 3% of the Total MSRP
Infiniti 1.5% of the Base MSRP
Jaguar No Holdback
Jeep 3% of the Total MSRP
Kia 3% of the Base Invoice
Land Rover No Holdback
Lexus 2% of the Base MSRP
Lincoln 2% of the Total MSRP
Mazda 1% of the Base MSRP
Mercedes-Benz 3% of the Total MSRP
Mercury 3% of the Total MSRP
MINI No Holdback
Mitsubishi 2% of the Base MSRP
Nissan 2.8% of the Total Invoice
Porsche No Holdback
Saab 2.2% of the Base MSRP
Scion No Holdback
Subaru 2% of the Total MSRP
Suzuki 3% of the Base MSRP
Toyota 2% of the Base MSRP
Volkswagen 2% of the Base MSRP
Volvo 1% of the Base MSRP

When figuring out the holdback for the vehicle of your choice, here is how to calculate it based on the table above:

  • Total MSRP: Include MSRP of vehicle including all options
  • Base MSRP: Include only the base price of the vehicle NOT INCLUDING the price of any options
  • Total Invoice: Include invoice price of vehicle including all options
  • Base Invoice: Include only the base invoice price NOT INCLUDING the price of any options

    Why is There Such a Thing as Holdback?

    The obvious question - why is there even a holdback amount? Manufacturers actually started using holdback over 50 years ago when new car dealers were having problems paying their taxes. They decided to keep a reserve for each car purchased by the dealer and would give them the payments on a quarterly basis - when their taxes were due.

    This kept many dealers afloat and the practice continues till this day, although now it's just more of a profit center for dealers rather than a way to avoid tax foreclosure.

    Can You Use Holdback in Your Negotiation?

    You can negotiate using holdback, but not the way you would expect. Most dealers view holdback as a sacred cow and will refuse to negotiate. What you can do is mention the fact that you know about holdback, especially if the dealer is whining about not making any money on the deal.

    In addition to holdback, there can also be other hidden kickbacks such as advertising credits and other forms of manufacturer incentives. The bottomline: Invoice price is never what a dealer actually pays for their vehicles - there's always going to be a lot of wiggle room for you to work with.

    Gregg Fidan

    About the Author: Gregg Fidan


    Gregg Fidan + is the founder of RealCarTips. After being ripped off on his first car purchase, he devoted several years to figuring out the best ways to avoid scams and negotiate the best car deals. He has written hundreds of articles on the subject of car buying and taught thousands of car shoppers how to get the best deals.

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