How Dealer Holdback Incentives still Ensure a Profit
There is a lot of confusion out there, about what dealer hold back really is. This is not a profit situation for dealers in most cases. The original intent of hold back was for the manufacture to assist the dealer in paying the interest rate while a vehicle sits in its inventory. The average dealer today cannot just pay cash for their inventory so they have to finance it just as most of us do when we buy a car. This is known as floor plan, if a dealer has inventory sitting on the lot it is costing them money every day it sits. If a dealership is ordering their cars, as they should the average life of a car on the lot is 90 days and that is how much the manufacture pays the dealership. The amount is based on a predetermined interest rate and a percentage of the vehicles invoice.
The best way to explain this is if a dealer buys a car, and the invoice is 20,000 to use round numbers. Now if you figure the dealer gets a rate of 5.9%, and the car stays on the lot for 90 days, then the dealer will pay about 95.00 a month in interest for every month it sits. Take that time's three equals 285.00 for the 90 day period. The manufacture may pay about 1 to 2 % of invoice in dealer hold back which means he would get somewhere from 300 to 400 in hold back. If you take out the interest there is only about 15 to 115 dollars left. If the car should sit longer, the dealer begins to lose money, but if it sells faster, he gains money the whole idea is to try and break even.Somehow, somewhere down the line people began to get the idea that it was profit. My best guess is that some said something while closing a deal and it just got out of hand, as the word was passed around. Most dealers have large over head, and some lots can have a monthly floor plan over 100,000.00. You have to sell a lot of cars in today's market to make that kind of money. This is only one of their bills they also have to pay electric, air, and water as well as payroll and many other miscsalanous expenses before they show a profit. A large percent of dealers today do not make any profit on the sales department. The real fact is they generally lose money or barley break even. The reason they can stay in business is because of service and parts or perhaps they have a body shop as well. They have to rely on sales to pay the bills, and the others to make a profit.
What I am about to tell you is a fact. I have been in the automobile business as a manager or a sales person for 25 years now. Back in January of this year, I decided to get out of the business and go to school. I couldn't afford to stop working so I am still selling cars now, but I truly hate what has happened to this business. One of the reasons is this idea of hold back. The average customer comes into a dealer thing they are going to get ripped off so their mind set is just that. After they negotiate a deal, or while they are negotiating a deal the phrase of hold back comes up about 90% of the time. I try to explain to them what I am telling you right now, but all I get is that blank deer in the head light stare and the usual comment of "yea sure." Now I have become a liar for what I just said. To me that's an insult. I don't need to lie to sell a car, but I know a lot of people do, and there is nothing I can do about that, but that's a part of my frustration with this business today also. I am doing my job and trying to earn a living. The average customer would be in shock if I told them what I made for a living, another reason I am leaving the business.
Why is it that when a customer goes into Sears or any other store they don't ask to see how much they paid for the product they are buying from them. Circuit City will make more money selling you a 4,000.00 T.V. set that a dealer does selling a 20,000.00 car yet no one ask them for their cost or how much hold back they get. I don't even know if they do get hold back, but that's just my point here no one does, yet everyone knows a dealer dose. Here is the biggest kicker. The guy who spent 20,000.00 on a car and didn't want anyone to make any money has a problem with the car two weeks later. He/she comes into the dealership demanding help and stomping his/her feet everywhere threaten to sue or just yelling to disrupt business, wants me or another sales person to drop everything we are doing to help them. The fact that I usually do doesn't keep me from thinking what I would really like to say to this person. This is the same person who I had spent hours or even days with trying to earn their business. This same person that may have insinuated I was a liar or a cheat, and then I made a whooping 200.00 dollar commission. How would you want to treat this person seriously? If you sell an average of 10 to 15 cars a month at 200.00 per car, well you added it up, not a pretty picture is it.
I am a professional car salesmen, like me, many of us are leaving this business. The hours and the money just aren't worth the aggravation we put up with any more. This is a fact that saddens me, because the next generations of sales people are real bad, they don't even care to learn the product anymore, nor do they care about the customer. I feel sorry you folks in the future because I know what you are going to have to deal with and it's not pretty. One thing I have always told my customers is that "the best price isn't always the best deal." The next time you go to buy a car please keep this in mind, by all means get your best deal but keep in mind that if your sales person is allowed to make a little bit of money he/she will be happy and stay where they are, so when you come back with a problem they will still work there and you will have a friendly face to deal with instead of a show room filled with different people. To answer the main question hold back does not insure profitability for the dealership it holds it insures customer satisfaction for you. The next time you buy a car thank your salesperson especially if you have bought from he or her before and they have helped you out in situations in the dealership, because that is what a professional will do.Sales means (Satisfaction) (and) (Lifetime) (Endless) (support) "what's it worth to you?"
