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The Truth about Holdbacks
I'd
like to clear up some points raised in a recent Smart
Money magazine article entitled "10 Things Your
Auto Dealer Won't Tell You" by Sara Breckenridge.
Within this article, the author talks about "holdback"
and considers it a bargaining tool with which car dealers
have and can use in negotiations. She presents it as
it is something you can use as leverage when a dealer
states that he or she can't meet the price you're looking
for. She even quotes the owner of a car-buying service
as saying, "You'll never get holdback money from
a dealer."
Holdback
is money that a dealer receives from the manufacturer
after a car is sold. It is paid on a quarterly basis,
ranges from 1 to 3 percent of the cost of a vehicle,
and is basically a reimbursement for the cost of keeping
the vehicle in inventory. While the author does explain
that, she also states that holdback is paid purely for
profit. But it is more than profit; it is like insurance
for the dealer. If a car takes longer than 90 days to
sell, the holdback is lost in interest, so there's no
"profit" made in these instances.
Holdback
is potential money a dealer can make, but it should
not be considered a bargaining tool. It is an incentive
for the dealer to sell cars quickly, which actually
works in favor for the consumer who is ready to buy.
Because it acts like insurance, holdback also allows
dealers to stock their inventory and offer customers
more variety and choices-another plus for the consumer.
So
just because a dealer hasn't told you about holdbacks
doesn't mean that he or she is keeping something from
you. Consider it money the dealer makes that does not
come out of your pocket!
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