Seasoned car buyers know the tricks of the trade. If it is time to buy a new car, they quickly search for the true dealer cost online before making a decision.
What about the invoice price? First, let us try to define the dealer invoice and the holdback.
The dealer invoice and the invoice price are in fact one and the same. This is the amount of money that the dealership had to pay for the car. Most dealerships pay in cash, but a majority of car dealers do not have the financial resources to pay in cash. Instead, they finance their inventory and pay a nominal amount of interest. This type of financing activity is called the dealer floor plan.
The dealership can use the dealer holdback to pay for the interest of the floor plan. The interesting part is that under the floor plan financing, the dealership has up to 90 days to dispose the car. If they fail to sell the car after 90 days (which is unlikely, except for the really slow selling models) then they can use the holdback to pay for the interest of the floor plan.
But if the car dealer manages to sell the car after a minimum period of 7 days, then it is safe to say that the entire holdback will be "pocketed" by the dealership in full.
Why is that? This is because the interest expense will be so small, that the dealer invoice will be enough to pay for the very small interest rate. That is how the dealer floor plan works.
It is important to know this because the dealer holdback is part of the invoice price. Even if you think that you purchased your new car "below the dealer invoice" then you are mistaken.
The car dealer still earned money from the sale, even if they say that you paid $1 below or above the dealer invoice. If you buy the car based on the dealer invoice, you should ask about the dealer holdback and have this deducted from the dealer invoice.
It is not your responsibility to pay for the interest of the floor plan. The holdback that you "took away" from the dealer will be reimbursed or "paid back" by the manufacturer. If you did not deduct the holdback from the dealer invoice, then the dealer essentially earns twice the amount.
How much? It depends on the price of the car. We will talk more about the dealer holdback and the dealer invoice, and how to get the true dealer cost on any type of new car on the next post.