Just what is Holdback?

In the car Business the most common question I get outside of work is “What is Holdback?”

It’s a fair question, but one which the average person may not like the answer.

First let’s start with what Holdback technically is.   When a car dealer orders a vehicle they have to pay the factory upfront,  not when the car is sold.  Manufacturers don’t stock dealership lots for free, they want their money first.    As you can imagine,  buying several hundred new cars, averaging around $20,000 a piece would be incredibly expensive.So instead car dealerships goto the financial bank of their manufacturer, such as Hyundai in our case, or to their local bank.  This is called “floor plan” another term you may have heard about.  Because dealers must finance these cars,  they just like you pay a monthly payment for every new car on their lot, whether the car sells or not.

In order to help new car dealers manufacturers started giving them “holdback”.  A holdback is a single payment per car paid to the dealer,  usually enough to cover about 90 days of “floor plan” (about 3 payments)  Sometimes less.

 

 

So can you get the dealer to release the holdback?  Maybe.   A high volume dealer may consider it if it will allow them to hit a high level bonus, but your average dealer depends on this subsidy called holdback to allow it to pay for it’s high monthly loan costs.If a car has recently arrived from the factory it’s possible a dealer will dip into the holdback for you.  However if the car has been sitting on the lot for longer then 90 days, or is a model from last year,  you can forget about it.  The dealer has long since exauhsted it’s holdback on that car and every month that has passed has erased more and more profit that the dealer had in the car.

 

 The bottom line is that dealers lose their holdback almost immediately which is why dealers don’t bring it up.   In the end if a car dealer will do whatever it can with discounts to try and make a great deal for someone to buy, but in the case of holdback it’s already been spent and you can’t give what you don’t have.