Invoice and Hold-Back “Invoice” and “Hold-Back” are common terms that customers and salespeople may use during the negotiation. Many times these terms are used as “buzz” words to demonstrate the customer’s “insider” knowledge. However, the salesperson may refer to the vehicle’s invoice without really describing the actual cost. These terms are only useful to buyers when they understand how they can affect the negotiation. You must know the true monetary value of the vehicle’s invoice and hold-back. This can be calculated automatically using our on-line calculators.
The car dealer's invoice
- Dealer Invoice is the price the car dealer pays the manufacturer for their new cars. For example, “Mercedes Benz” is the manufacturer and “Mercedes of Chicago” is the dealer. “Mercedes Benz” sells the new cars to “Mercedes of Chicago,” which they will then sell to their customers. Obviously, “Mercedes of Chicago” must purchase its cars from “Mercedes Benz” for less than they intend to sell them to the public. Dealer invoice is a relative cost to the vehicle’s MSRP (Manufacturers Suggested Retail Price). The MSRP is the sticker price from the factory and is known in the business as the “Monroney” Sticker. By law, it must be displayed prominently on every new vehicle.
The Monroney Sticker
The “Monroney” sticker must include the following information:
The manufacturer’s suggested retail price
Engine and transmission specifications
Standard equipment and warranty details
Optional equipment and pricing
City and highway fuel economy ratings
The difference between the MSRP and the dealer invoice is the amount of “Front-End” profit allocated for each car.Of course, some cars sell for less than the MSRP and some may even sell for more: nevertheless, the invoice will remain the same.
The dealer invoice is approximately 6% to 7% less than the MSRP.
Therefore, if a car’s sticker price is $20,000, the dealer’s estimated cost is about $18,600. Keep in mind that this is only an estimate. Each car manufacturer has its own cost structure.
Some regional costs can also be added to the dealer invoice. The most common addition to the invoice is a regional advertising cost. This is not used to pay only for “Mercedes of Chicago’s” television ads. A customer should treat it as a hard cost, or he will show his lack of knowledge about the industry.
These regional advertising costs usually occur when there are several franchises in the same general area and they pay for the regional advertising campaigns that are produced by the manufacturer. For instance, if you live in San Francisco and you see an advertisement for Bay Area Mercedes Dealers, the Mercedes Benz dealers that are located in the Bay Area were charged an extra amount to pay for those ads.
The car dealer's pack
Another common addition to the dealer’s invoice is called “dealer pack.” The “pack” is meant to pay for the basic functions of the company, like the electric bill and rent. Although the sales department does not receive any commission from the “pack,” it is not a hard cost from the manufacturer. Therefore, it can be excluded when the customer is given the calculated invoice cost.
Vehicle invoice is an important number to know in advance of negotiating your deal. However, on most vehicles, it does not reflect the net cost to the dealer. This is because most dealers will receive a “Hold-Back.”
The car dealer hold-back
Dealer “Hold-Back” is money paid to a dealership by the manufacturer to offset the cost of having an “in-stock” selection of vehicles for sale. Most car dealers will have to finance their inventory. This financing cost is called “Flooring.” Because the manufacturer wants the dealer to have a good selection, they contribute to the “flooring” by offering their dealers hold-back payments. For example, if a dealer buys a car from the manufacturer for $20,000, they generally will have it at the dealership for an average of 90 days before it sells. Most dealers will finance that $20,000 cost over the 90 day period. Because the manufacturers want the dealer to have a good selection of vehicles for sale, they will reimburse that finance charge. In most cases, the dealers will receive the hold-back every 90 days.
On average, the dealer hold-back will be 2% to 3% of the Base MSRP, Total Invoice or Base Invoice. Recently, manufacturers have also tied bonuses to the dealer’s hold-back payments. For example, some manufacturers will increase the hold-back percentage if the dealer maintains a good CSI rating or exceeds their sales goals. However, some dealers may find the hold-back reduced if the dealer fails to meet minimum requirements. Negotiating hold-back is a tricky business. Keep in mind that the Salesman, Closer and Sales Manager are normally not paid on the hold-back. Therefore, even though the dealership may be making a hold-back profit, they are not sharing it with the people with whom you are negotiating.