June 9, 2006, Newsletter Issue #44: The Basics of Car Dealership Lingo

Tip of the Week

Before, you haggle the sales staff at your local auto dealerships, be sure to learn the language. Dealer holdbacks and dealer incentives are very different. Both are components provided by manufacturers to a car dealership. A dealer incentive is a special offer the manufacturer extends to the car dealership to inspire or help ensure car sales.



Depending on the manufacturer, the dealer holdback may account for either a percentage of the Manufacturer's Suggested Retail Price (MSRP) or invoice price of a new car that is reimbursed from the manufacturer to the car dealership.



Since, dealers are required to pay manufacturers when an automobile is ordered opposed to when it is sold, car dealerships will acquire financing from either a manufacturer or financial institution. A dealer holdback is designed to help the car dealership maintain cash flow and inadvertently lower “variable sales expenses.”



Car dealership financing is referred to as a floor plan. It enables the dealer to maintain inventory and operating costs. In return, manufacturers will replace the dealer’s interest obligation on the floor plan or loan for the first 90 days by issuing a "holdback" check every 90 days. As a result, using a dealer’s holdback during price negotiations may not give you the bargaining advantage.



For example, if a vehicle has been collecting dust on a car dealership’s lot for more than 90-days, the profits from a dealer holdback have been depleted, more than likely. Consequently, negotiating with a car dealer over potentially non-existent funds will not benefit one's cause.

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