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Dealer Holdback questions
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I said: **dealer probably paid in and around the $8's for it .. a little this, a little that, it might hit the table in the low low low $9's ...... ** ... I "didn't" say: Dealer paid high 7’s/low 8’s per ...
Anyway, back to holdback .. all dealers, even (yuk) Kia dealers have to make "in and around" $2,500 per unit to stay alive .... so whether they make $1,900 on the last Ody, $600 on the last Accord EX, or even the Lexus they sold for $12,000 to make $3,000 to throw into the mix, they have to make it - it's called profit ... it's not a 4 letter word, you don't get cancer from it and it doesn't cause nose bleeds, it's business ... and it's a expensive business, just like the furniture down the street from you that just made $900 on that $2,000 couch you sit on, or the jeweler on the other side of town that just sold that Tag Heuer for $1,500 when they can be bought on the internet for $800 ... it's just business..
Just a regular ol' Mom and Pop set-up with 80 new cars and 40 used is going to pay somewhere in and around $30/$40 grand a month in just floorplan, add some lights, add some air in the south and some heat in the north and your staring down another $5,000++ a month, lets drop in some insurance, a little advertising, maintenance, water bills, some liability ins, fuel charges and paperwork and thats another $8,000++ a month --- and I won't even go into the costs of Workmans comp, Mortgage payments, city/county taxes, CPA's, payroll costs, 401k's, health insurance, Attorneys, recons, repaints, redo's, broken glass, missed parts and all the stuff it takes to support the sales department, store all the parts and carry the service department ......
Bud.! .. this ain't no lemonade stand.! ..
Terry.
___Sorry, I had multiple windows open and thought I was posting in the “ask a dealership a question” thread. I will hopefully see you over there later tonight.
___I have a question in terms of HB that you might be able to comment on? I see the Civic’s and Accord’s advertised down into the “Holy Grail territory” all the time in the “Accord Prices Paid” thread and in the local Chicago paper. I saw a Honda dealership blow out a brand new 04 Accord EX w/ 5-speed (meat cleaver, I know I know ;-)) for $17,499 and a brand new Accord LX w/ the same for $15,862. I saw an 04 Civic EX Coupe w/ Auto being blown out for $12,000 this week as well. All links below.
http://cgi.ebay.com/ebaymotors/ws/eBayISAPI.dll?ViewItem&cate- gory=6254&item=4506602118
http://cgi.ebay.com/ebaymotors/ws/eBayISAPI.dll?ViewItem&cate- gory=6254&item=4512213962&rd=1
http://grandhonda.com/images/weekly_specials.jpg
___Why bother ordering them?
___Good Luck
___Wayne R. Gerdes
If the comments you and I have been reading in 'Honda Accord - Prices Paid' have even a grain of truth, then it appears those cars are being sold very cheaply.
Why are they being sold so cheap? Who cares? All it means to me is that I will offer less money than usual when we try to buy an Accord next year. Because of the great deals people claim they have gotten, I will also try making a deal over the internet and see what happens.
In the meantime, there are more critical things in my life that demand immediate attention, like whether I should carry my 3-iron or my new 23 degree club in my bag next week.
Even more important, will my wife like her Christmas present? I hope she will. It is a little model of a lighthouse in St. Augustine near where we first kissed 34 years ago.
I am amazed that there are some people defending this practice on the basis of comparisons (you don't ask for the invoice on a loaf of bread), or on emotions (just decide what you feel comfortable with, and ignore the cost), or justify the means with the end (it costs us a lot of money to run a business).
I have not seen a single justification based on ethics and morality. When a dealer tells me that he will be up front with me and share the invoice, so he and I can agree on what we think is a reasonable profit to cover his cost of doing business, that sounds commendable, and I will accept his invitation to enter into an open discussion. However, when it turns out he is lying about his numbers, trying to pass off a savings as a cost, he is lying. When he whines about only wanting a 'fair' profit, and insisting that 'profit' is not a four letter word, I would point out that evidently he believes 'lying' is not a four letter word either.
I don't care that he is trying to get a certain profit margin to run his business. I do care that he is trying to accomplish that goal by lying.
Presenting real costs and saying 'I want a $ 1,500 profit' gives the same end result as saying he will accept a $ 500 profit, but doubling up a $ 500 holdback. The $ 1,500 profit might be a harder sell, but the $ 500 profit line is a pure lie.
I wouldn't dig so hard about establishing a dealer's true cost, except that this type of behavior has given the industry the reputation of being liars, so my only recourse to being lied to is to do my homework so I can cross check what I am being told.
Art
It appears you may have been promised a deal. A deal of $500 over what the dealer knows his invoice cost to be. But you don't agree with it. You are posting that the dealer took his invoice cost, added $500 then added the promised $500. Have I read the posts correctly? Perhaps actual numbers would make it easier to follow.
The Toyota Invoice to the dealer includes a holdback, call it $ 500. Toyota will sell the dealer a car for $ 20,000, and incoice them for that amount. This is the famous 'dealer invoice'. At the end of each quarter, Toyota writes the dealer a check for a $ 500 refund (holdback) for every car they sell. In other words, the true cost of the car to the dealership is the Toyota Invoice, minus the $500 holdback. That car with a $20,000 invoice sticker is really going to cost the dealer $ 19,500.
There are other costs - delivery, advertising, etc. but ignore those for now.
If I agree with the dealer to give him a $700 profit over his costs, the math ought to be:
$20,000 Toyota invoice - $500 holdback
equals 19,500 his cost; + 700 profit = $ 20,200 bottom line.
What my dealer tried to pull, was that he agreed with my $ 700 over cost offer, then pulled out a computer printout which listed:
Toyota invoice = $ 20,000, plus holdback of $ 500 = $20,500, plus my $ 700 profit = $ 21,200.
Net, in adding Toyota invoice, plus a string of other costs, he also added the holdback, instead of subtracting it, to arrive at what he called the 'dealer invoice'. He allowed me to believe this was his cost. When I called him on the math 'error', he gave me lines like 'holdback is part of the invoice'.
Yes, it is part of the Toyota invoice, but it should not be part of his invoice, and it certainly should not be in his invoice twice. After discussing this with the manager, I finally got him to admit that they were doing what I thought they were doing, but justified it by suggesting they needed this extra profit because it costs a lot to run a big expensive dealership.
As stated, I was prepared to negotiate and agree on what we both felt was a fair profit. It just pissed me off that the dealer pretended to have this discussion, but was actually lying about his costs to pad his margin.
There were 1 or 2 other posts in the 4Runner buying experience forum where people posted the dealer cost options - invoice, plus options, plus advertising, plus fuel cost, plus holdback, etc. Then they give a total at the bottom. If you pull out a calculator and add their column of numbers, you will see that the 'total' they report was arrived at by taking the Toyota invoice and ADDING the holdback, not subtracting it, as is correct.
I also got the impression this invented 'total' was also labeled 'invoice', not because anyone was ever invoiced for that amount, but because then they could use the word 'invoice' in an explanation, without ever being clear if they meant Toyota invoice, or their 'invented invoice'.
Art
trying to beat the dealer at his own game is the quickest way I know of to turn the whole experience sour and chances are you won't win....
Based on your research formulate an Out the Door price and make an offer....getting into a discussion about holdback and the like isnt going to get you anywhere....if they say no way and let you leave the dealership, your offer it to low and you wasted time. If they chase you out the door and take your offer, you win.
You are missing the point. It is not just about how much. It is about the dealer telling me he is sharing the numbers, then trying to pull a fast one.
It's about being dishonest.
I have difficulty calling anything a 'fair' price when the other party presents false or misleading data in order to agree on that price. To be clear, they probably did not do anything I could prove to be illegal in court. They did show me all the numbers, and the numbers were correct. Then they added them all, and called it the 'dealer invoice' - I don't think they used the word 'cost'; but they knew I would likely misunderstand what the math was trying to establish, and they let me believe that mis-understanding.
I walked into that dealership trying to establish a 'fair price' for the service of ordering a car and selling it to me. They indicated we were negotiating that 'fair price' with the intention of padding the cost of the item being sold to increase the profit over what they had already agreed was fair. What's fair about that?
montanafan, Edmunds does not give actual costs. Edmunds gives MSRP and invoice prices, and has a listing of holdbacks (I believe Toyota is 2% of base vehicle MSRP). Edmunds also has a glossary section which explains what a holdback is. They leave it up to the reader to actually do the math.
Whether they receive 2%, 0% or 3%, it's a mute point .. you need to know the invoice, any possible ad charges thats on there and, any and all rebates ...
(example) if the invoice is $20,100 and there is a $1,000 rebate you just need to find a figure that is fair for both, and that can depend on what time of the year, options and the geographic area .. so if you both feel comfortable at $20,500, then it becomes $19,5 after the rebate -- holdback has nothing to do with the price, it's not a profit center ............
Terry.
Of course holdback is a profit center - that's exactly what it is. Holdback is a 'hidden' profit the dealer gets, and this tricky accounting was exactly developed to help dealers improve their cashflow.
For an in depth explanation, read Edmund's own explanation at:
http://www.edmunds.com/advice/incentives/holdback/index.html
Holdback artificially inflates the 'dealer invoice' price on a car, both for cashflow reasons, as well as to allow the dealer to advertise low prices relative to the 'invoice', when the invoice isn't their real cost.
Granted, rebates, ad charges, etc are also important, but an artificial inflation is hardly a moot point when it's my money I'm talking about.
In your example, with an invoice of $20,100, and you hypothetically agree on $ 20,500 being a fair price - are you assuming here that the buyer knows the vehicle actually cost $19,400 and they were paying a profit of $ 1,100, or did this hypothetical buyer agree to that price because they thought $ 400 was a fair profit for completing the transaction?
Art
I have done this so many times in these forums I'm exhausted.
.. **The holdback is designed to supplement the dealer's cash flow and indirectly reduce "variable sales expenses" (code words for sales commissions) by artificially elevating the dealership's paper cost** ...
For starters, dealers pay somewhere in and around a quarter point over prime to cover their floorplan, and depending on the size of the store, the product and how fast they can sell their units, the floorplan can cost $150,000++ a month or more .... holdback was structured back in the late 70's early 80's as a "safety net" when interest rates were 15/20/25%+ and dealers were going down faster than the Space Shuttle and stores were closing or 5 minutes away from bankruptcy ...
Holdback has never been a profit center, it's used to *offset* the cost of the rolling inventory .. and depending on the size of the store it can be 3.5 million to 35 million++ .. some vehicles sell in 22 days and some sell in 222 days, and someone has to pay the lender for the floorplan every month .. sometimes the holdback pays it off and sometimes it doesn't, and remember, the dealer pays upfront for everything and has to wait for the holdback .. would you work for 3 months without a pay-check.? .
The best way to understand it.?
Pretend your a Home builder and you just built "Ten" $250,000 homes -- one sells in 10 days, one sells in 25 days, another one sells in 45, the tan one down the block sold in 55 days, the one with the green spa sold in 69 days, the crazy shutter one sold in 80 days, and you sold the 2 blue ones to the same family in 100 days, and we got lucky after putting new tile into the base model and we sold that one in 120 days - and last but not least, we finally sold that small one after we dropped another $5grand into it in 180 days ... and the whole time, the clock is ticking away and your paying the bank for the money and your profit is slipping away .. kinda gives you a different viewpoint, don't it.? .. thats why holdback is not a profit center ...............
Terry.
You say holdback is to "offset the cost of the rolling inventory". Dunno how it works where you come from, but here my Toyota dealer adds a seperate charge to the cost of the car called a somethingorother financial reserve, which is there specifically to pay the financing charges for the rolling inventory. That is a seperate charge that was being added to the price of the car (along with advertising), on top of the holdback, and on top of the second holdback he added to create his 'invoice' price.
It seems to me the discussion of 'is holdback a profit margin' is being argued based on 'no, because we really deserve it'.
Art
Not really- the "car guy" regulars who post here(isell, drift, terry audia8) routinely explain why holdback is not a profit center as well as why its NOT a good tool to introduce in the negotiating process.
Correct me if I'm wrong but I believe Toyotas go from factory to distributor to dealer...where the other makes are factory to dealer. So maybe the finacial reserve is really the added cost of the vehicle passing through the distributor??
Just a guess.
When you sell something for more than you bought it for, that difference is called a margin. After you subtract your expenses from the margin, you are left with a profit. This is what you can stick in your pocket and take home.
I think the argument being made by the dealers is that holdback is the portion of the margin which covers expenses, and should therefore not be considered to be profit.
Unfortunately, the business model is a little more confusing than that, because expenses are made up of fixed (or overhead) expenses plus variable expenses. For a car dealer, virtually 100% of a dealer's costs are fixed costs. Fixed expenses are rent, lights, salaries. Variable costs are what is directly associated with the sale - if you make 101 sales in a month, you variable cost is higher than if you make 100 sales in a month (the cost of the meat is a variable cost for McDonald's).
What gets confusing is that if you take a macro view of the business. Just making up numbers, a dealer can divide his annual $ 1,000,000 overhead up over a total 1,000 cars sold, and conclude that it costs $ 1,000 per vehicle in overhead costs, so he needs an average $ 1,000 margin per vehicle just to break even. Toyota helps him here by creating a $ 1,000 holdback.
Now I walk in the door and offer to buy a vehicle at $ 500 over cost ($500 under invoice).
You can take several views of this offer:
He is losing money, since my sale is not covering 'fair share' of his overhead expenses.
Alternatively, since he has no variable costs, by accepting my offer he has $ 500 more in the pot to pay for his overhead than he would have if I walked out the door. If he is having difficulty finding his 1,000 customers, he could accept my offer on the basis that he only needs to average $1,000 per vehicle, so he can make it up on his other sales. It's still $500 towards his expenses which he will lose if I walk out, and if he accepts, his # vehicles sold goes up, so Toyota is happy with him.
If he is on allocation, so he only gets 1,000 cars per year, and there are enough customers that he will sell all 1,000 cars at minimum $ 1,000 over cost, he'd be crazy to accept my offer. But this example only applies if the supply of cars is limited.
If he is on track to sell 1,100 vehicles this year, he will cover his costs, plus have $ 100,000 to stick in his pocket. Now he can actually sell for less than average $ 1,000 per vehicle. In this example Holdback is a profit center. This guy could take my offer. Yeah, his average margin goes down, but if you have your costs covered, you are worried about total profit, not average.
So, holdback is margin. Holdback can be profit. And a deal that makes less than holdback can still make the dealer money, it's just less than average.
I still haven't figured out why my dealer tried to to pull a sneaky move and add a second holdback to the price.
Art
'We can't let you have any of the holdback on this car that's been on our lot for only one day, because somewhere around here we have one that's been on the lot for 120 days.'
You can see where some buyers of the one-day car don't think the other car that's been in your inventory for 120 days is their problem....
It soes NOT belong to the customer. It belongs to the dealer. It is NOT bottom line profit.
Besides Holdback to pay for advertising and Floor plan, what about Honda’s floor plan monies to the dealer as well? I saw this over at TVTEC a few months ago.
This is a list additional money that a Honda dealer receives from the factory.
Contrary to popular belief "Holdback" does not actually pay for floorplan interest on cars.
American Honda pays the dealer a set amount per car that will pay for the interest if the
car sits on the lot for 60 days. Sixty days is the ideal turn-time for a dealers inventory.
4D 2.4 DX 5-Speed Manual - $75
4D 2.4 DX 5-Speed Automatic Transmission - $80
4D 2.4 LX 5-Speed Manual - $90
4D 2.4 LX 5-Speed Automatic Transmission - $95
4D 2.4 EX 5-Speed Manual - $100
4D 2.4 EX 5-Speed Manual w/Leather - $105
4D 2.4 EX 5-Speed Manual Leather w/Navi - $120
4D 2.4 EX 5-Speed Automatic Transmission - $110
4D 2.4 EX 5-Speed A/Transmission w/Leather - $110
4D 2.4 EX 5-Speed A/T Leather w/Navi - $120
4D 3.0 LX 5-Speed Automatic Transmission (V6) - $105
4D 3.0 EX 5-Speed A/T w/Leather (V6) - $120
4D 3.0 EX 5-Speed A/T Leather w/Navi (V6) - $125M
Good Luck
Wayne R. Gerdes
A. The dealer wouldn't have brought it up if you didn't bring up the holdback,
B. The dealer doesn't have to sell you the car for a net loss, which brings us to...
C. The dealer is going to sell the car for what the market thinks it's worth, not what a buyer "thinks" a "reasonable" profit would be.
Maybe there is a car out there selling for Invoice - Holdback - Rebates, but I doubt it. I doubt I'd want that car anyway, lol.
I think you are talking about marketing assistance. Helps assist in marketitng the cars and it's FAR from profit.
I have NO IDEA where your numbers came from or if they are right or wrong.
All of these numbers must be VERY important to you!
I didn't say anything about expecting the dealer to sell a car for a net loss, or selling it for Invoice-Holdback-Rebates.
And I agree: I wouldn't want that car, either. Although I bet I can name at least a half-dozen domestic sedans out there that fit the description......
I'm not saying that the customer shouldn't shoot for a good deal. I'm just saying that anyone that thinks they're going to get into holdback, or thinks that they can convince the salesperson that invoice is actually good money because of holdback, is setting themselves up for a miserable buying experience. Not to mention that most salespeople get paid based on amounts above invoice (not counting rebates) - they're going to LOVE anyone that brings up holdback, lol.
So really, the benefit for the dealer is moving cars quickly, in that the less time all vehicles are on the lot, the more holdback the dealer gets to keep--and the more it offsets that same light bill. That's less money that has to come from somewhere else to pay that bill. So isn't that helping the bottom line?
Sort of like the political argument about whether or not a roll-back of a tax cut is a tax increase...
Yeah, but if it doesn't completely cover that light bill/salaries/benefits/taxes, then the dealership loses money, when in fact the whole idea is to make money. Obviously, moving inventory quickly is good, but making money is better.
that is how I read it, anyway...
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Car_man, the Host in the Edmunds' leasing forum, says dealers 'dip into holdback' to make deals.
Is he lying?
PS: He's SO courteous and polite!
However, don't be upset if your offers are refused. The dealers own the cars, and they can choose to sell them for whatever they want.
Please show me where I said holdback is 'a bogus charge.'
All I did was suggest that a dealer that routinely has quick turnover--and substantial end-of-month HB--ought to have lower selling prices because their overhead is reduced accordingly. I was routinely machine-gunned out of the saloon by Terry and Isell just for daring to pass through the swinging doors.
But, of course, salespeople here seem to dominate this discussion. So I'm stupid, they're Milton Friedman, and I don't understand Business 101. Is it any wonder the vast majority of consumers loathe the car-buying process?
And, yes, SOME dealers can choose to sell them for whatever they want. Unfortunately, not all dealers are selling M-5's and AMG Benz's. Not too many Ford dealers are naming their prices right now (Mustangs excluded).
Back to the original subject - why was my dealer asking for double the holdback (by adding it, not subtracting it), plus a profit over that? Are none of the other car dealers on this forum shocked at this practice, or is that just part of the business that you get used to?
Art
While it is interesting to hear about dealer holdback and how it works, in reality Lexus dealers are not dipping into holdback to make deals. The more important question is, "What is the market like for the car that I am interested in and how much are others paying for it right now?"
Terry.
Find another store!
the posters tone and attitude has created alot of questions...
we don't know what happened at the dealership, we only know one side of the story and it seems fishy from both sides of the table. I don't think anyone is suggesting that anything crooked is "just part of the business."