Car dealerships receive various incentives and holdback amounts from manufacturers each time they sell a vehicle. These amounts are in addition to rebates, which are passed from the manufacturer to the customer.
Types
Dealerships receive a holdback, which is money intended to offset the normal costs of doing business, on each vehicle. A holdback ranges from 2 to 3 percent of the dealership's cost for a vehicle, so on a $20,000 car, a dealership will receive a holdback between $400 and $600.
Dealer cash is also used to help a dealer increase profit on a sale. This amount is usually offered on vehicles that are in low demand, and dealer cash may or may not be passed on to the customer at the dealership's discretion.
Benefits
Dealer incentives and holdbacks allow a dealership to remain profitable on a sale, even if they sell a vehicle at invoice, which is a dealership's approximate cost for a vehicle. This results in better deals for consumers.
Significance
Dealer incentives and holdbacks can help a manufacturer move a larger volume of vehicles that are otherwise selling poorly. Be sure to ask a dealership if they have any dealer cash available, so you can get the best deal possible.
Effects
Some manufacturers emphasize manufacturer-to-customer incentives, which must be passed on to the end customer. Other brands, primarily import and luxury brands, emphasize dealer incentives. In either case, the rising amount of incentives used in transactions leaves consumers wanting even larger discounts.
Expert Insight
Websites such as Edmunds and CarsDirect provide information on current incentives and can put you in touch with local dealerships. Internet sales managers are more apt to let you know about dealer cash and holdbacks than a regular floor salesperson.
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