Car Buying

What Is a Dealer Holdback?

What is a dealer holdback? Discover what it is, how it works and how you can utilize the knowledge of a dealer holdback to negotiate a better price.

Read time

4 minutes

Date

04.28.2023

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If you’re looking purchase a car, have you encountered the term “dealer holdback”? 


This can be a confusing term, but here’s what a dealer holdback is, how it works, and how you can utilize it to negotiate a better price. After all, when purchasing a new car, the more educated and knowledgeable you are about the process, the more leverage you have when negotiating. 

What is a dealer holdback? 

A dealer holdback is an amount of money that is paid to the car dealership to the manufacturer. The amount differs by manufacturer. For example, if you’re looking to buy a Cadillac, the manufacturer, where the car is produced, will pay a certain amount of money to a Cadillac car dealership. This is a way to increase the cash flow for the dealer and indirectly reduce sales commissions by increasing the dealer’s paper cost. 

How a dealer holdback works

In the past, car dealerships would show customers the invoice price, or the price the dealership pays the manufacturer for the car. Why would car dealerships do this? They would show customers the invoice price to prove to the customer that they were getting a fair price. But the dealer would make a certain percentage of profit from the “holdback” of the manufacturer.   


Holdbacks allow the dealerships to advertise their cars at near invoice prices while still making a profit on the transaction. 

How to calculate the holdback 

Dealer holdback is calculated as a percentage of either the MSRP (Manufacturer’s Suggested Retail Price) or the invoice price. It can either be a fixed amount regardless of the model of the car, or it can be individualized and take into account vehicle options such as technology packages or four-wheel-drive.


In general, domestic based manufacturers usually offer dealers a 3% holdback. Foreign brands typically provide varying holdback amounts that are equal to a percentage of the MSRP or invoice price. Others don’t have any holdbacks.


Which manufacturers have holdbacks? 


Some manufacturers don’t have one at all and others do. To check, get your hands on the dealer’s invoice. You can usually find it listed with the letters “DH” and some numbers after it. For example, if you see “DH000284” you know the dealer holdback is $284. It could also be listed as a special note on the invoice explaining that the dealer “receives a reserve.”

How to use a dealer holdback to negotiate 

Some people like to utilize the information of the holdback to negotiate a lower price. Here are some tips when utilizing this tactic.


  • Treat the holdback as another piece to the pricing puzzle - Let’s say the car you’ve chosen has an invoice price of $25,000. If it’s a Nissan, according to the chart above, you can assume that 2% of the price, or $500, is put aside for the holdback. 
  • Make the dealer aware that you know about the holdback - Even if you know the percentage, you could ask, “What percentage of the price is for the dealer holdback?” This way you get verification and you are letting the salesperson know you are aware of the dealer holdback.
  • If the dealer complains that they aren’t making money on the deal, refer back to the holdback.


The dealership may not be willing to cut into their money, but knowledge is power and knowing more about the overall picture of the cost of the car means you have more leverage. 

An alternative to buying a car 

While knowing more about holdbacks can help you with leverage in the negotiation game, you may not even want to participate in it. Purchasing a car can be very involved and require a lot of research and negotiation skills. Additionally, perhaps you aren’t ready to make a commitment to purchase a car. 


Consider the alternative of a car subscription with FINN. With a car subscription, you can get behind the wheel of a car you want versus one you can afford. It also allows you flexibility based on your life circumstances. 


As an example, let’s say you want to get a car for your teen who just earned their driver’s license, you currently live in the midwest, and they take frequent short trips. However, you’re unsure of their future plans. Now let’s say they end up living near a mountainous area and need a more rugged vehicle. 


A car subscription would allow you to change vehicles without the hassle of selling and purchasing a different car in a few short years. You also don’t have to worry about things like depreciation, high interest rates, or maintenance. 

Final thoughts

The way the price of a car is figured contains many components. A holdback is one of these components, and the more you understand about what it is, its purpose, and how it’s calculated, the more you can utilize this knowledge to help you get the best price possible when purchasing a car. However, an alternative to purchasing a car is a car subscription from FINN. Check out the cars available and see how easy it is to get on the road when one of these cars is dropped off at your doorstep. 

How a FINN Car Subscription Works

1. Choose your perfect car

Pick your next car and select the term and mileage package that’s right for you.


2. Get approved in a few clicks

Submit your information and get approved in under five minutes.


3. Delivery straight to your home

Schedule for FINN to deliver your new car so you can focus on the road ahead. 


4. Just hit the road and swap when you’re done

All that’s left to do is drive. When your term is over, you can return the car and pick out something new, or simply walk away.

How a FINN Car Subscription Works
How a FINN Car Subscription Works

How a FINN Car Subscription Works

1. Choose your perfect car

Pick your next car and select the term and mileage package that’s right for you.


2. Get approved in a few clicks

Submit your information and get approved in under five minutes.


3. Delivery straight to your home

Schedule for FINN to deliver your new car so you can focus on the road ahead. 


4. Just hit the road and swap when you’re done

All that’s left to do is drive. When your term is over, you can return the car and pick out something new, or simply walk away.