konigstiger

What does this have to do with your W211? Well, in understanding the fundamentals of automotive retailing today this could help with negotiations. I would think, most especially, for those who live in areas where dealers hesitate to match the lower pricing of southern CA.

Wall Street Journal 1/27/04
“The Auto Industry Finds the Right Gear”
CEO of AutoNations, Inc.

So what are the facts today? Well, gross profit at retail on a new vehicle is 7%. That’s the difference between what a consumer pays the retailer and what the dealer pays the manufacturer. In other words, that’s the consumer’s cost for retail distribution. Out of that 7%, the dealers pay for commissions, advertising and fixed costs. And what are the manufacturer’s distribution costs? They have advertising, shipping, field personnel, and inventory-carrying costs, which will add several more points to distribution costs. So now you’re at about 12%, counting retail plus manufacturer.

Challenges: For the manufacturers, it’s grappling with overcapacity and legacy costs. For suppliers, it’s how to hit ever higher quality targets at lower cost. And for retailers, how to make money while continuing to improve the customer experience? Here the diversified business approach of retail wins the day. By concentrating on high added-value rich margin, service and parts, as well as finance, insurance, and used vehicles business, the retailer succeeds.

So these are today’s basics without going into the details of holdback and manufacturer to dealer, or manufacturer to consumer incentives. For those who didn’t already know, thought this would be interesting.

Rudegar

I'll try to find out whether this is full disclosure from an associate who has knowledge. It seems to me that the 7% is the first part of the story but that the dealer receives 2-4% later from the manufacturer based on performance incentives.

etenn

It is called the "hold-back".

E55AMG99

Numbers vary by manufacturer and car model and even sub-type.

konigstiger

What Exactly Is Holdback?

Dealers must pay the manufacturers when they order a vehicle, not when it is sold. To provide adequate numbers of new vehicles whose options satisfy most customers, dealers finance this excess inventory through the financial arm of their manufacturer or through a local bank. This financing procedure is called a floor plan. To help their dealers keep up their inventory, manufacturers return the interest the dealer has to pay on those loans (floor plan) for the first 90 days by issuing them a "holdback" check every 90 days. The amount is based on the either the base MSRP or total MSRP or the base invoice or total invoice - less destination charges and averages between 2% and 3%, depending on the manufacturer. MBUSA is 3% of total MSRP,

If the car's just arrived, the dealer gets to keep all of the holdback as instant profit. At 45 days he gets to keep 50% of it. Since most dealers rotate their inventory in less than 90 days, they usually get to keep some of the holdback payment. If a car has been sitting on the lot for 90 days or more, all of the potential holdback profits have been wasted on interest payments that the dealer makes to floor plan (finance) the vehicle. After 90 days, the dealership has to dip into its own profits to keep the car in inventory.

Orders - Since the dealer doesn't have to floor plan (or finance) a vehicle that's ordered, the holdback is pure profit so take that into consideration when you finalize your negations.

In addition:

Dealers who excel in dealer service ratings receive an additional 1% to 2% rebate as a further incentive to keep up their good service record.

Long Islander

Useful info on holdback. I must say, whenever I've asked whether the price is less on an ordered car vs. one in stock, the salesman has always said no. I guess they try to extract whatever they can, and try to encourage you to buy what they have immediately.