Dealer Holdback questions

mirth

I think you mis-read his post.. He is saying.. "no problem, IF holdback covered all of those things.." With the inference being.. that it doesn't...

 

That's what I was saying.

bobst

I don't think dealers who sell a lot of cars can afford to sell them for less.

 

Assume I am a dealer with 100 cars on the lot. Each day I sell one, and a new one arrives. Each day I pay interest on the loans to support 100 cars.

 

On the other hand, assume I have 100 cars on the lot and sell all of them each day. In addition, 100 new ones arrive to replace the ones I sold. Each day I pay interest on the loans to support 100 cars.

 

In both cases, the cost to the dealers would be the same.

heywood1

I see your point, but I doubt the revolving door of arrivals and sales works that perfectly in sync.

bobst

Yes, I doubt the sales and arrivals would be perfectly in sync like my example, but I bet the dealers who sell their cars quickly have as large an inventory as dealers who take longer to sell cars. Therefore, they both pay approximately the same interest to the bank each day to cover their inventory.

 

Of course, I know nothing about how a car dealership works, and I don't care. All I want to do is buy the car we want for a low price.

sirman

There is more to overhead than the interest. There are all the fixed costs of the non-commission staff. Pretty much whenever, someone sells more of something the overhead goes down.

audia8q

it typically costs a dealership $1200 to sell a new car when all factors are included. building, rent, salaries, advertising, inventory costs, etc...

rroyce10

.... **it typically costs a dealership $1200 to sell a new car when all factors are included. building, rent, salaries, advertising, inventory costs, etc...
** ........

Bingo.!



Terry.

isellhondas

Nobody buying a car wants to think about that and that's fine with me.

I just don't want invoices and holdback pushed in my face either.

kyfdx

Hey.. I'm with you..

I don't want to be in the car business, and you don't want to hear about my kid's braces, etc...

I do my research and want to buy the car as cheaply as possible (hopefully from someone local), without having a stroke, and you'd like to sell the car for as much as possible, without starting WWIII and spending 4 hours doing it..

But, you and I are the exceptions....

Believe me, for every buyer that goes in saying he knows about holdback, "secret double-probation money", and everything else and wants to grind for six hours, there is a salesperson telling you how they will lose money on the deal, and how he has to feed his kids, and that they can't keep the lights on, and the purple car with the 3-speed on the column is very rare and they have to charge a premium, etc, etc...

It goes both ways... the difference being.. you don't find many clueless sales managers that screw up and sell a car for $4000 too little.. But, the world is full of poor rubes that pay $4K too much for their car..

I'm just doing my part to bring that average gross profit back towards the $1200 mark...

regards,
kyfdx

rroyce10

... **there is a salesperson telling you how they will lose money on the deal, and how he has to feed his kids, and that they can't keep the lights on** ...

Here's a whacko thought .. he's probably telling you the truth .................................... :surprise:

Terry.

kyfdx

Well... I think you got the "whacko thought" thing right..

My point... is for every goofball customer that starts prattling on about "dealer business" without being prompted... there is a salesman that will bring up dealer overhead, etc.. also without being prompted..

Your furniture store, jewelry store analogy is appropriate here.. Have you ever had a jewelry store salesperson start talking about how much the rent is when discussing the price of a Piaget? Or a furniture store salesperson that will tell you about how the finance person has to get paid also? Or about the cost of good quality walnut veneer?

I've bought a lot of cars, and have never brought up invoice, holdback or dealer overhead in any of my discussions.. But, I've sure heard a lot about it from the salespeople...

And, don't even get me started about the Nissan salesman that brought up Pearl Harbor (in 1987, for pete's sake!), when he could see that I was already driving a Honda..

I reiterate.. Overhead isn't my business or my problem.. I won't tell you your business, or mine.. Even if you do tell me yours...

Well... except here on Edmunds, of course.. Lie back on the couch and tell me about your childhood...

regards,
kyfdx

isellhondas

It would take a very unprofessional salesperson to talk about his finances, kids braces etc with a customer.

I also just happen to think it's just plain rude for a customer to ask (yesterday) what we paid for a used car he was looking at. I guess I was brought up in a different time.

I wanted so badly to tell him....NONE OF YOUR BUSINESS !

It drives some shoppers nuts that they can't look up on the internet what we pay for our used cars! I love it!

driftracer

on here and fishing Terry for auction reports on specific units (dropping the VIN) - drives 'em nuts.

Probably bugs the tar out of Terry, too!

rroyce10

.... **Have you ever had a jewelry store salesperson start talking about how much the rent is when discussing the price of a Piaget?** ...

As a matter of fact, I've had a quite a few ...

Just ask for a discount or give them any offer thats not Retail $$ and you can hear the sad story .l.o.l... .. I've had quite a few try to tell me they were only making $300/$400, when they are actually making $1,200/$1,500 - and they do it with a straight face ... I've had many occasions on furniture buys when they tell me it's the biggest sale on the planet at 50% off .. when they actually raise the prices by 20/30%, "then show" a 50% discount, they're still making $700 on a small ordered piece, and the customer is paying for the delivery .. do you think anything is different with the golf or the boating business... ?

I kinda see things a little different than you, because I see the whole picture ... someone will try to beat a Bimmer dealer into a coma over $200 on a $45,000 vehicle, then on the way home, he'll stop off and pay $450 for the new Nike driver (with his Visa card and his 18 handicap) when he could have paid $250, online .............. what price glory.?



Terry :confuse:

rroyce10

....... Oh, by way .... and don't get me started about the Real Estate biz .......

Terry

ksccts

Let it fly, brother! :mad:

eharri3

"I've had many occasions on furniture buys when they tell me it's the biggest sale on the planet at 50% off .. when they actually raise the prices by 20/30%, "then show" a 50% discount, they're still making $700 on a small ordered piece, and the customer is paying for the delivery .. do you think anything is different with the golf or the boating business... ? "

HA! You've never shopped at 'The Dump' before have you? The place came highly recommended ot me for killer prices when I was furnishing my apartment so I went by to take a look. Mediocre little piece of crap couch that should sell for 600, marked up to 2000, then marked back down to 1200, and I was actually supposed to leap at the chance for this incredible 40% discount! I can't believe there's actually people that do, but I didn't have the heart to say anything to some of these people bragging about paying over 1000 dollars for ugly, cheaply made couches.

Kirstie_H

Let's just stick to dealer holdback, please, as it relates to automobiles.

bobst

I would never bring up holdback or anything like that when we make an offer. I figure the sales manager is a professional who is well qualified to decide whether he wants to accept our offer or not. Telling him why he should accept our offer would be insulting to him.

In other words, we let our money do the talking.

phili

A Toyota dealer showed me an invoice with starting amount + 2% holdback +
1% "finance reserve". From this forum I think I understand how to treat the holdback, but is "finance reserve" any different? I don't know if this applies, ut I'm paying cash.

bobst

Go to the 'Prices Paid' DG and find the thread where people discuss the prices they are paying for the vehicle you want. Then you can figure out how much you should offer.

We had bought several Hondas (two in 95, a 97, and a 99), and we always had to pay $150 to $250 over invoice. Our offers lower than that had been refused. I assumed we would have to pay a similar price for a 2005 model.

People on the 'Prices Paid' Honda Accord thread said they had been buying cars for much less than that, so we went to a dealer, offered about $500 under invoice for an 05 Accord, and they accepted. The education I got her on Edmunds saved us at least $600.

So forget about holdback and financial reserve and details like that. See what the buyers on Edmunds are paying for cars and go from there.

mirth

Toyota seems to have a bunch of nutty fees that originate from their distribution network. Maybe a Toyota dealer could give you more insight.

But listen to Bob - figure out what you want to pay and ignore the fees. As long as the number at the bottom of the page is right, the dealer can allocate whatever they want to various fees.

phili

Thanks. I'm glad I know the details of the numbers in case the dealer wants to
argue about the offer, but in general it is usually just a matter of the dealer saying
how about $19xxx, customer saying 19xxx -$yyy, and go from there.

bobst

What do you mean "in case the dealer wants to argue about the offer"?

What is there to agrue about? Either they accept your offer or they don't. You do not have to justify your offer. It is what it is. They can either take it or leave it.

thenebean

please keep in mind that every manufacturer does their holdback differently. I've heard lots of people mention how toyota does it - and i don't think it is that way for everyone across the board. also, the dealer does not collect twice on holdback (once from you, and once from the manufacturer). just like you guys, we finance our cars (or floorplan) so say we have a car that invoices for $20,000. that is what we write a check for (so to speak) or what gets financed. say this particular car has a holdback of $500. when you come in and buy the car from us at $20,000, we take that $20,000 and pay off the loan, so we dont keep all $20,000, or the $500 that we're gonna get back from holdback anyways. holdback is only given to us quarterly, so we dont even see it immediately! so no, it is not a bogus fee, no we are not collecting twice, and no, $500 is not sufficient enough gross on a car to keep a dealership open. i know you all want a great deal, and that's fine! but as someone mentioned, its not about getting a better price than your neighbor, its about feeling comfortable with what you did pay! if you are happy, who cares if your neighbor spent $100 less than you did?

hopefully that helped simplify the holdback explanation. there is a lot of great information out there, from other salespeople/dealers that i read on here. happy motoring!

-thene

phili

Some dealers will argue about it (debate? converse?) rather than just counteroffer. I offer $17000 he says "$17,000? I had to pay 17xxx for the car..." instead of just saying "I need at least $17,500. As for just giving a number to the dealer and having him take it or leave it, that's not always the best negotiating tactic. If you knew all the numbers the dealer factors in, knew just what pressure he was under to sell on that day... you could pinpoint a rock-bottom number and leave if he doesn't agree to it. But often you can try a low low figure in case there's a factor you're not aware of (like some dealers with $15k Camrys on Fridays...). If he doesn't bite you go to a number using the numbers you are confident of and are still willing to pay. Unfortunately this is a game with the dealer (no pun intended) holding most of the cards. You need to play their game- or pay MSRP and avoid the arguing and gamesmanship.

isellhondas

" Who cares if your neighbor paid $100 les than you did"?

There are a lot of people with that mentality. They live in fear that just maybe, someone, somewhere paid less for the same car than they did.

I happen to think that would be a very small and miserable way to live, but we are, indeed, all different.

bobst

Phil, how do know when the dealer "doesn't bite"?

From my experience buying our last three cars, the only way to know your offer has been refused is to leave the dealer and drive away.

When we bought a car in March, the sales manager refused our offer. Instead of increasing it, we left and started to get in our car. The salesman then came outside and said our offer was accepted.

Therefore, you should only make one offer on each visit to a car dealer.

thenebean

bobst,

im curious - when you make your offers - what kind of prices are you offering? lets say for example, you are looking at a car with MSRP of $22000. Invoice is $20000, and holdback is $500. before you add in the tax, reg, dealer conveyance fees, what kind of sale number are you working with?

thanks

-thene!

p.s. way to go on the ironing too!

phili

Bobst: The dealer doesn't bite when he let's you get in the car and drive away.
The first time I went to the dealership I made an offer and he said, "Whoa that's too low. Make that offer to other dealers and I doubt anyone else will go that low".
I contacted other dealers and none of them would "bite" at that number but one did come in lower than the others.

My opinion is that your method works in circumstances where your offer is in the ballpark. But your offer is based on all the information you have accumulated on that car/dealer. If you are certain you know all the factors for that dealer pricing the car and you feel there's no reason for the dealer to turn it down, it is a great method to make the offer and be 100% prepared to leave if it is turned down. My method is based on the judgement that no matter how much you research there can be factors the customer doesn't know about. If I try a number that's lower than what my numbers support I could get a great deal. If not, with my method I have a chance to go up to another number and still get a good deal.

I guess I view new car buying like a game of poker. You can have what you feel is a good hand and put all your chips in. The other players can match you or drop out. Or you can bet a chunk now and see how the play unfolds.

Phil

bobst

When we bought Hondas and one Acura in the past, would offer invoice + about $200 + transportation + 3.1% tax + $50 for tag/title.

Before we bought our Honda last month, I read in the Prices Paid forum that some people were getting cars for $1000 under invoice. Therefore, instead of offering our usual $200 over invoice, we offered about $500 or $600 under invoice (hard to be exact because we had to guess at the price of the options we wanted), and they took it.

When we bought our 1999 Accord EX, we paid $20300 OTD. On the new car, with the same options, we paid $20800. That's a pretty small price increase for a 6 year period, isn't it?

Well, enough of this sissy computer stuff. Time to be a real man and sweep the kitchen floor before my wife gets back from her business trip.

Bob

thenebean

bobst,

sounds fair to me! I was thinking you'd be offering something like $500 below invoice all the time! again, like you found on your accord - it depends on the market - some cars get blown out below invoice. of course i'd love to make sticker (who wouldnt!) but a couple hundred over invoice seems fair enough.

have fun sweeping the floor!

-thene

Kirstie_H

Let's stay focused on holdback, please. Thanks!

re_buchanan

I'm buying a new truck and I have some very particular requirements, so my dealer will have to transfer the vehicle from another dealer. I understand that this is an extra hassle for them, so I'm willing to be a little more flexible on price (even a little above their cost of actually retrieving the vehicle.)

However, the salesman told me that they would not receive holdback on a dealer trade (I never mentioned dealer holdback, but the salesman was aware that I had researched the value of my trade on Edmunds.) Is this true?

audia8q

Generally the dealer who originally has the car keeps the holdback...the selling dealer usually buys the car from the other dealer at invoice. In some cases (depending on the mfg) the original dealer will make more than the selling dealer.

thebill

*sigh* I wish this post was on permanent rotation on all the boards.

thebill

thats ridiculous.....

raybear

Now if they swap vehicles your dealer will get the holdback on the car they sent to the other dealer, but often as not it'll be for a less pricey model so your consideration of paying a bit more will be appreciated.

rumblefish1

Who cares if your neighbor paid $100 les than you did"?

There are a lot of people with that mentality. They live in fear that just maybe, someone, somewhere paid less for the same car than they did.

I happen to think that would be a very small and miserable way to live, but we are, indeed, all different.

Typical sales pablum.

Thene, are you telling me if you were buying a business - like a McDonalds franchise - you wouldn't care what other McD franchise were selling for in your area and that you'd be happy to pay MORE for that franchise than what others did??

For many people, an new automobile is the largest or second largest purchase they'll ever make. A $100 or $200 is a LOT of money to them . . . and, if it wasn't to dealers also, then they wouldn't fight for that extra $100 or $200 on a new car deal either (be it called a hold back or whatever).

thebill

no matter which way you spin it, its all a wash. as long as a customer is happy with the deal they recieved, it doesnt matter.

mirth

Thene, are you telling me if you were buying a business - like a McDonalds franchise - you wouldn't care what other McD franchise were selling for in your area and that you'd be happy to pay MORE for that franchise than what others did??

Let's break it down. A new car, with taxes and all, averages around $27,000. $200 is less than 1% of that. So if another franchise was offering the same $2 hamburger for 2 cents less than the nearby place, would you drive over there? But it's not even that easy - once you're there you'll have to spend an hour negotiating to get that 1% off. Or you'll have to go to a dozen franchises and spend an hour at each one. Is it worth it, even for $200 - not to me.

socala4

Art, you obviously have a good understanding of holdback, don't let the disparaging comments from the salespeople deter you.

It's very simple:

Dealers have a series of cash inflows and outflows.

-What you pay for the car (the purchase price) is one source of inflow
-Holdback is another source of inflow
-Incentives from the manufacturers are still another inflow
-And so on, and so on, and so on

At the end of the day, the dealer has a long series of inflows and outflows. If the former exceed the latter, then it will profit; if the latter exceed the former, it will lose.

In the big picture, the source of inflows is unimportant, as long as there is a profit; at the deal level, the dealer will get what he can, but will compromise based upon what the deal will fetch him at that time. (For example, if making that month-end sale helps him to hit a sales target, or if moving a loser off the lot helps get rid of a tough item of inventory, then he might make that sale for that reason, even if it is a low- or zero-profit deal.)

The holdback is important to the buyer because it provides him with more information about what the dealer's sources of revenues happen to be. It is a crucial component of knowledge in the buyer's tool kit.

At the end of the day, it is up to the buyer to pay as little as possible. If taking a piece of the holdback is possible, there is no reason not to do it. Just be wary how you bring it up -- for whatever reason, it is a sore spot for dealers, so try to take it without rubbing their faces in it.

socala4

Here's a reasonably good, albeit somewhat convoluted link that explains holdback in the context of floor plan:

http://www.safecarguide.com/gui/neg/holdback.htm

The underlying point here is that a dealer doesn't actually purchase the car at invoice, but finances it. In theory, the holdback is a payment to offset those financing charges.

In practice, the specific justification for the holdback is not important for the buyer, it's still an inflow that the dealer is tossing into his math equation.

But a key factor for the buyer to understand is that from the dealer's perspective, his purchase is financed, which makes his margins much better than they may first appear. Even if a dealer sells a car at some fraction above or below invoice, his leveraged rate of return from that sale may be quite high, i.e. he made a fair bit of margin in comparison to his actual out-of-pocket purchase price because the only amount that went out of his pocket was his floorplan charge, which is just a fraction of the purchase price. Understanding the role of leverage (financing) from the dealer's perspective is critical to seeing how they make money on a sale, and why they can afford to sell cars at such low margins.

pat

This Edmunds article may also be helpful: Dealer Holdback.

joel0622

Ya wanna know why sales people seem to have lost interest when you start talking about getting into the holdback? Because if you are to that point then you have already blown past the part of the profit they get paid on. most stores they get paid on the spread they keep between invoice and list. IMO people go about the negotiation process all wrong, they get to caught up in all the thrill of the hunt. If you truly want your best deal in the quickest manner with the least hassles trade soley on difference, cause when the smoke clears that is all that matters. How much difference do you have to pay between your trade in and our car. Pay attention there will be a test at the end.

Do your research though,just don't spend the afternoon telling me about your research, we know pretty quickly if we have a savvy buyer on our hands. For example you decide you want to buy a 2008 Yugo XLSTCEVMICKEY with a sticker price of $30,000. You do your research and find the following.

Cost=$28500
Rebate$2000
HB $450

So that brings it down to $26050. You think a fair profit on this rare and hard to find Yugo SUV 6 Door Cross Over Sedan would be 4%

$26050 X 4%=1042

So that means you are willing to pay $27092 Ok thats established

Now on to your trade. It is a one owner Datsun B210 that is immaculant. you check KBB/NADA/TCO/BB/FBI/NCIS and feel that fair trade in on this one of kind immaculant machine is $8000.

$27092-$8000=$19092

Viola we have are difference. In your mind a difference of $19092 is fair.

Saturday morning rolls along and you are loaded for bear you have all of your print outs stored in 12 different color coded binders, the title to your trade in your front pocket for all to see, you got your game face on, you have briefed the wife, packed treats and bottles water for the kids and had a good nights sleep you are ready.

You pull up on the lot you size up the 11 guys and one girl out front smoking ciggarettes and eying your car you pulled up in. You see there mouths moving and your read there lips. Hope that things paid for, who is up, not me, I'll take them, if I don't get off this slick spot I am dead meat.

You tell the sales person that you already know what you are here to look at and give him the stock #. He says great thats the managers special today, you think man I am goin to eat this guy alive, he is discounting the car already and I don't have him in the building yet.

You go through the ride and drive like the car you have done your research for 3 months on this exact car and probably know more then the guy trying to sell it to you, or at least you think you do.

You go inside he writes the deal up He starts out saying, Sir how would you like your new car titled (that is code for crap I forgot his name)

You start to get out your 14 binders, 11 adds, 3 print outs you didn't have a binder and the out dated NADA book you bought 6 months ago. BUT WAIT!!!!!!!!!!!!!! You don't need all that. All you have to do is say

Sales person, I don't care how you get there or what you do, but I will give you $19092 difference + tax and I will ride today, please figure it up quick because if you can't do it I need to get to the next place.

Thats all there is to it folks, all that matters is the difference your paying. if they give you a $1000 more for your trade but sold the car for $1000 more, who cares its still the difference you wanted. the definition of a good car deal is one both the customer and dealer can live with. Nothing more nothing less

I know I made fun of both party's here the buyer and the seller, but hey fun is what get me to work every day

bobst

Joel, that is why some of us just make an OTD offer and wait to see if it is accepted. It makes car buying a very enjoyable, painless experience.

jipster

My last two car buys were OTD offers with negotiation. Most pleasant and enjoyable.

gasman1

Good job on laying it out. I'm a difference buyer as well. I once had a salesman that wanted to lay out all the numbers before presenting my offer. I told him that I didn't care if he put down that his vehicle was $1,000,000 or that my trade was $1. I will pay the difference of $x plus state sales tax. Again, good job on your presentation.

joel0622

The cost after you subtract Hold Back and all from invoice is what we (at least in my store) call triple net. You all know what "net" means right? as in break even. Thats really not what I strive for when I leave the house every morning

geo9

Don't forget to add $$ for the extra key !

j/k :P