Holdback or Holdup?

If A Car Dealer Show You His “Invoice” …He’s Lying

Back in 1968 when I first went into the retail car business with my father, I can remember asking him, “What is holdback?” I was learning the business and had been studying the invoices on new Pontiacs that General Motors sent us when they shipped a new car that we had ordered. We had to pay the invoice immediately when it was issued, sometimes even before the car arrived at our dealership. In most cases, it was our bank or GMAC who paid GM and we borrowed the money from them to pay for the car. 

My father’s answer to my question about holdback was that it was an increase in the amount of the invoice that we paid General Motors which was not really part of the price of the car. It was just an extra amount added to the real price of the car and included in the invoice. At that time, it was 2% of the MSRP (manufacturer’s suggested retail), so if a new Pontiac Bonneville had an MSRP of $10,000 and a true cost of $9,000, the factory invoice would be $9,200. I asked my father, “When do we get the $200 back?” He said, “At the end of the year”. I asked him if they paid us interest on our money and I can remember him laughing loudly and saying no.

Of course my next question was why they do that. He told me that the reason they gave him was to “help dealers sell their cars for more money” so that they didn’t go broke. He said that because they didn’t get their holdback money for such a long period of time, they began to think of their invoice as being the actual cost of the car. General Motors felt that many dealers were such poor businessmen that they might sell their cars so cheaply that they would go out of business. Now, because GM was kind enough to hold back hundreds of thousands of dollars of the dealers’ money (and pay them no interest on it) but return the money to them once a year, they could help the dealers make a bigger profit and maintain adequate working capital.

At that time, I thought this was the biggest bunch of boloney I had ever heard and I was sure that this was a scheme by the manufacturers to keep a free float of millions of dollars of their dealers’ money under the guise of helping the dealers. I asked my father why the dealers didn’t strongly object to this and he said that most dealers actually “liked” the idea of holdback. When I heard that, I thought that maybe GM and the manufacturers were right about the dealers not being smart enough to sell their cars for a reasonable profit.

It took me a few more years in the business before I understood what was really going on with holdback. It was a “no brainer” as to why the manufacturers liked it, but at last I understood its attraction to us dealers. Because we had to pay an extra amount over the true price of the car and not see that money for up to a year, we began to think of the invoice as the true price, even though it was inflated by hundreds of dollars. Because all manufacturers added holdback to all dealers’ invoices, the net effect was to raise the price of all cars to all buyers by the amount of this holdback. I know this is a dirty word, but it’s price fixing on the grandest scale. This might have been something that Henry Ford, Alfred Sloan, and Walter Chrysler concocted while playing golf at Bloomfield Hills Country Club outside of Detroit.

Another neat thing about holdback for us dealers is being able to tell our customers that we are only charging them “X dollars” over invoice; or we can tell them that we will sell them this car at invoice with no profit to us at all! (There’s a sucker born every minute) Dealers often have “invoice sales” with copies of the invoice pasted on the car windows. Who doesn’t believe that an invoice is the cost of the car? The truth is in the semantic skullduggery …” Mr. Customer, I solemnly swear to you that this is the exact price that I paid the factory for this car. In fact, here’s a copy of the invoice.” That’s what the dealer “paid” the factory all right, but it’s not what he paid the factory after he got his holdback check in the mail…or, let’s call a spade a spade, his KICK-BACK.

You might be thinking, so we’re talking about $200 more or less on a $10,000 car. Who cares? Don’t forget, that was almost 50 years ago. Holdbacks have expanded considerably and now instead of several hundred dollars we’re talking several thousand. Also, dealers no longer must wait a year to get their hold back money back. Now they get it back monthly. Manufacturers even changed the names of these monies they hold back. These are innocuous names so that, if you see them on the invoice, you will have no suspicion…names like floorplan assistance, advertising, PDI, Administrative or DAP. Of course, there are also cash rebates to dealers that don’t even show on the invoice. I estimate the average car invoice today includes $3,000 to $4,000 in hidden holdbacks to the dealer. Holdbacks are also applied to factory or distributor accessories like “protection packages” [wax, undercoat, window etch, roadside assistance], floor mats, window tint, etc.

The bottom line is that you should never rely on the dealer’s factory invoice to determine the price you are willing to pay for a car. And be especially suspicions when the dealer quotes you a price of “X dollars over invoice” or shows you the invoice. You’ve heard the old joke, “How can you tell when a politician is lying?” Answer: When his lips are moving. “How can you tell when a car dealer is lying?” Answer: When he shows you the invoice.

Common Deceptions by Car Dealers... Check out the Gallup Annual Poll; Honesty & Ethics in Professions

Click Here for Gallup Poll Results!

I get a lot of heat from the Florida Auto Dealers Associations (FADA), auto manufacturers, and most car dealers because I say “bad things” about the way they do business. In my own defense, I’m just one voice among most Americans that feel that the majority of car dealers are unethical and dishonest. The Gallup poll on “Honesty and Ethics in Professions” has been conducted every year since 1977 (40+ years) and car dealers have never ranked above 4th from the bottom. Last year they were next to last, just below Congressman and above Lobbyists. All other retailers except car dealers have “gotten smart’ to match the intelligence and high demands of the 21st Century American consumer, but car dealers are still selling cars the way they did in 1950.

The “Big Sale Event”. If you look online or on TV, you’ll find that most car dealers in your area are having a sale of some kind. It may be because of a current holiday, “too large an inventory” of cars, to “reduce their taxes”, “the manager is out of town”, or some other nefarious lure. Advertising 101 says that you should give the prospective buyer a “motive to act”. Unfortunately, it doesn’t matter whether the motive is real or not. The fact is that most car dealers do not sell their cars for less during “sales events” than they do at any other time. I point this out so that you don’t rush your buying decision. If you don’t buy a car during the tight time constraints of a phony sales event, you can negotiate just as good a price the next day. The exceptions to this are legitimate rebates offered by the manufacturer. These often expire at the end of the month which is one reason why the “last day of the month” really can be the best time to buy a car”.

“The Price I’m giving you is good only today”. If a salesman or sales manager tells you that, it is probably only a tactic to push you into buying the car. The only exception would be the expiration of a factory incentive. Once again, this is simply a tactic to push you into buying before you have a chance to do your comparative price shopping.

“I can’t give you my best price, but if you bring me another dealer’s price, I guarantee I’ll beat it”. Car dealers are afraid to give you their best price because they fear other dealers will beat if by a few dollars and they’ll lose the business. Guess what! That’s called “the free market place” and that’s the way all other businesses are conducted. The only retailer that won’t give you a final, out-the-door price is the car dealer. They’re still selling cars like they were sold in the middle of the 20th century. Can you imagine walking into Target or Macy’s and asking for the price of dress or a TV set and the sales person tells you can’t have it unless you buy it right now?

“Take the car home tonight and see how you like it”. Driving the car, you’re considering buying, home can be a good thing. It will give you a lot better idea about how the car performs, etc. However, there are two reasons the car salesman offers this. One is that you must leave the vehicle you might be trading in with the car dealer. This means that you cannot shop prices with other dealers. The second reason is the psychological impact of parking that new car in your driveway where your family and neighbors can see it. The slang expression for this is “the puppy dog”. If you were to take home a little puppy from the pet store, you and your children would fall in love with her and could not return her the next day. This same tactic is used when a customer has questionable credit. This is referred to as the “spot delivery” and the dealer will have you sign a form known as a “Rescission Agreement”. You might not even realize that you’ve signed it. It says that you must return the car immediately if the bank rejects your credit application. If you don’t comply, there are huge financial penalties.

I’ll hold the car for you, but you must give me a cash deposit. Deposits in Florida are nonrefundable only if that is stated in writing on the receipt for the deposit. Always get a written receipt and not just handwritten on the salesman’s business card. Read the receipt and be sure that it does not say in the fine print that refunds are nonrefundable. It’s a good idea to give them your credit card for the receipt instead of cash or even a check. You can always protest the charge with your credit card company if the car dealers tries to unfairly keep your deposit.


“Make me an offer and I will take it to my manager for approval”. This is a very common tactic which you have probably already encountered. It’s not unethical. It’s simply part of negotiating. I point this out so that you are fully aware that this is part of the negotiating game. Be aware, that no matter what price you offer, the manager will ask you for more money. Even if you offered a high price that would be a very large profit for the dealer, the manager would ask you for more money. The psychology behind this is that if you suddenly accepted the offer, you may frighten the customer by thinking he had offered too much (which he would have). When you negotiate, you must be well versed on what is a good price for that car. Start out below the best price you think you can buy it for You can obtain fair prices for all cars online with Kelly Blue Book (KBB.com), Consumer Reports, TrueCar.com, and Edmunds.com.

The “really big” discount”. Recently, a friend showed me direct mail advertising piece from a new car dealer with a coupon good for $3,000 discount on any car in his inventory. This is very common for online, direct mail, and TV ads too. Federal law requires new cars to have a price sticker on the window named the Monroney label. A discount from this suggested retail price gives you a fair basis for comparison. Unfortunately, most car dealers today, increase the suggested retail price substantially with the use of an addendum to the Monroney sticker often referred to as a “Market Adjustment Addendum”. This “adjustment” can be several thousands of dollars. Be sure you know what the asking price is for the car when you have been offered a “big discount”.

I’ll sell you the car for $100 over my cost. The salesman will show you the invoice of the car and add $100. The invoice price of a car is NOT THE TRUE COST. The dealer invoice contains thousands of dollars in hidden rebates, holdbacks, advertising kick-backs. The manufacturers are colluding with the dealers in this deception to raise the advertised and actual selling price of cars. Any car dealer would be delighted if he could sell every car at the factory invoice amount…he’d make a fortune.

The best protection from all the above is to find a car dealer that you can trust. Ask your friends about their experiences with dealers and call the Better Business Bureau and the County Office of Consumer Affairs. Unfortunately, this is a very difficult thing to do. I recommend two third-party buying services, www.TrueCar.com and www.CostcoAuto.com. You must pay a fee to become a Costco member, but there’s no charge for TrueCar. You can also buy through Consumer Reports; they use TrueCar as dealer and pricing source. If you buy directly from a dealer, you better off to negotiate the price completely online. Remain anonymous so that you won’t be harangued by car salesmen. Use a different email address and don’t give them your real phone number.

Dealing with the Dealer Fee: Earl Stewart’s User’s Guide

Hopefully by now, all but my newest readers know about the infamous “Dealer Fee”. If you don’t know, it’s a hidden price increase on the car you purchase disguised to look like a federal, state, or local tax or fee. It’s 100% profit to the dealer. “Dealer Fee” is the generic name for this disguised profit, but it goes by many names such as doc fee, dealer prep fee, services fee, administrative fee, electronic filing fee, e-filing fee, tag agency fee, pre-delivery fee, etc. The names are only limited by car dealers’ imaginations. Almost all car dealers in Florida charge a Dealer Fee. The dealer fees range from around $600 to as high as $2,000+!



This is the Florida law that is supposed to regulate the Dealer Fee: “The advertised price must include all fees or charges that the customer must pay excluding state and local taxes.” The law also requires that the Dealer Fee must be disclosed to the buyer as follows: “This charge represents costs and profits to the dealer for items such as inspecting, cleaning, and adjusting vehicles and preparing documents related to the sale.”



This law is very weak and virtually never enforced. When enforced, it isn’t enforced by the letter of the law; it is done to “accommodate” the car dealers. The law is “weak” because it requires only that the dealer fee be included in the “advertised” price. The word “advertised” is narrowly interpreted to mean one specific car shown in an online, Facebook, TV, radio, or print ad. But what about getting a price on the phone, online, or from the salesman? You don’t find out about the Dealer Fee until you’re in the business office signing a bunch of papers. The dealers get around advertisements very easily by including a “number” in the fine print. This number is their stock number that designates one specific car. When you respond to the ad, this car is no longer available (sales people are usually not paid a commission for selling the “ad car). The advertisement might say “many more identical cars are available.” It’s true that identical cars are available for sale, but they are not available for sale at the sale price because they are not the advertised stock number car. If you buy one of those “exact same cars” you will pay from $700 to $2,000 more.



The reason I’m told that the law is rarely enforced is that the Florida Attorney General’s office is understaffed and too busy enforcing other Florida laws. I’m also told that Florida car buyers don’t file very many complaints against car dealers for violating the Dealer Fee law. I don’t believe that there can be too many other infractions of the law that take more money annually from consumers than dealer fees take from car buyers. Just one car dealer selling 1,000 cars a year and charging a $1,000 dealer fee is taking a $1 million annually from car buyers. Most car dealers in South Florida sell lot more than 1,000 cars annually and many charge more than $1,000 dealer fee. I believe that the reason more complaints aren’t filed on the dealer fee is because most car buyers don’t know that they are being duped. They either don’t notice the fee or assume it’s an official federal or state fee. Dealer often tell their customers that all dealers charge it and that it’s required by law.



The Attorney General also “accommodates” the dealers by not interpreting the law the way it was intended. For example, the law says that the dealer fee must be included in the advertised price. The Florida Senate has ruled that the law requires that the fee be “included” rather than “specifically delineated.” But the Attorney General allows car dealers to advertise car prices without including their dealer fee in the price if they mention their dealer fee in the fine print. They also allow car dealers to simply state in the fine print that they have a Dealer Fee but not even mention the amount. To me they are simply allowing the car dealers to break the law. The Florida Auto Dealers Association (FADA) is the powerful lobbying arm for Florida car dealers. It’s almost impossible for a Florida Attorney General to be elected without the support of car dealers and the FADA.



Lastly, the required disclosure of the Dealer Fee on the vehicle buyer’s order or invoice is confusing, misleading, and incorrect: “This charge represents costs and profits to the dealer for items such as inspecting, cleaning, and adjusting vehicles and preparing documents related to the sale.” It should not say “costs” because any cost that you pass along to the customer in the price of a product is pure profit. A dealer can pass along his utility bills, sales commissions and advertising if he wants to and call it a “dealer fee”. It should not say “inspecting, cleaning, and adjusting vehicles” because all car dealers are reimbursed by the manufacturer for “inspecting, cleaning, and adjusting vehicles”.



So, what should you do when you are confronted by a car dealer with the “Dealer Fee”? Besides “LEAVE”, here are some suggestions that may help you:



(1) Make it clear from the very beginning that all prices you discuss must be “out-the-door” prices. This way you don’t care if the dealer fee added up front because you will shop and compare their bottom line price with at least 3 competing car dealers. Ideally you should require that they include tax and tag in that price. If you don’t they might try to slip in something they call the “electronic filing fee” or “e filing fee” and trick you into believing it’s part of the license tag and registration.



(2) The dealer will often tell you that all car dealers charge Dealer Fees and that they are required by law to add the dealer fee on every car they sell. Simply tell them that you know this is not true and you can cite me and other car dealers like CarMax who do not charge a dealer fee. Print out a copy of this article, show it to them, and tell them that you know that there is no law that says he must charge you a dealer fee.



(3) As long as you and the dealer understand that the out-the-door price is the price you will shop and compare with his competition, you don’t need to be concerned whether there is a dealer fee showing on the vehicle buyer’s order. To be competitive, the dealer can simply reduce the price by the amount of his Dealer Fee and the bottom line is what you are comparing.



(4) Be aware that dealers usually do not pay their sales people a commission on the amount of their dealer fee. In fact, dealers often misinform their sales people just like they do their customers. The salesman who tells you that the all dealers charge Dealer Fees and that the law requires everyone pay a dealer fee may believe it. Sale people who understand that the Dealer Fee is simply profit to the dealer will be resentful of not being paid their 25% commission on it. A $1,000 dealer fee costs the salesman $250 in commission.



(5) When you respond to an advertisement at a specific price for a specific model car, object when the dealer adds the dealer fee. Unfortunately, the law allows him the loophole of claiming that the ad car is a different stock number, but you might be able to shame him into taking off the dealer fee. If you raise a “big enough stink”, the dealer would be smart to take off the dealer fee than claim that technicality, especially if you were to advise the local TV station or newspaper.

(6) www.TrueCar.com is the one third party buying source which requires its certified dealers to give you a final price excluding only GOVERNMENT fees only…sales tax and license plate/registration. This prohibits the dealer from adding dealer fees and dealer installed accessories. Consumer Reports, American Express, USAA, GEICO, and other blue-chip companies use TrueCar.

I hope that these suggestions help you and I hope that you will file a complaint with the Florida Attorney General, Pam Bondi. If enough consumers (who are also voters) let our elected officials know how they feel about the Dealer Fee, it will bring positive results. You can download a complaint form for the Florida Attorney General’s Office at www.FloridaCarDealerComplaints.com.

Hold the Owners or CEOs of Car Dealerships Accountable

Congress passed a law a few years ago that really “shook up” publicly owned companies. It’s called Sarbanes-Oxley, named after the Congressmen who sponsored the bill. Basically, this law says that the CEO and other high echelon management of a public owned company cannot get off the hook from wrong doings because he or she claims they didn't know what their employees were doing. I believe the same rules should apply to all businesses, even if their stock is not publicly held. The boss should always be held accountable for the actions of his employees and this should apply especially for car dealerships.




Most of the employees that customers meet in a car dealership are paid on commission. Those employees get a percentage of the profit that the company makes on the transaction. Car sales people, service sales people (also called service advisors or assistant service managers), parts sales people, and the mechanical technicians who work on your car are mostly all paid on commission. This method of pay tilts the relationship between the customer and employee in somewhat of an adversarial manner. The employee wants the profit to be as high as possible but the customer wants it to be low. In a car dealership that has talented, fully engaged, and ethical management, this potentially adversarial relationship is kept in a fair balance. Without the oversight of upper and middle management and careful hiring practices, some employees will exploit a customer to increase his commission.




What brought the subject of this column to mind was a call I received yesterday from a 78 year old widow from Ft. Pierce. She called to thank me for writing my column and to tell me that she wished she had read some of my columns before she bought her 2005 used Mazda. This was the first car she had bought on her own. Her husband had always taken on this responsibility. She paid the dealership a huge profit on her purchase. She was sold a maintenance package that she believed cost only $25 but it really was $2,500. She was rushed to sign the papers at night because the dealership was closing. In the morning, when she realized the mistake, she drove back to the dealership and asked to back out the sale but was told it was too late. She was told she had signed all the papers and that they had already sold her trade-in even though she had not given them the title. When she asked to speak to the General Manager, three different employees identified themselves as the General Manager. I get a lot of sad calls like this.




The owner of that dealership should know what’s going on. I’m giving him the benefit of the doubt by saying that he doesn’t know because if he does know it’s even worse. The owner should look at the big picture and the long term view of his business. You can take advantage of customers and benefit in the short run, but you eventually “pay the piper” when your bad reputation spreads far enough. Most of the bad things I hear about car dealers from their customers are not illegal things. They are simply unethical and not the way one human being should treat another. Refusing to refund the money of an elderly, widow after she realized that she had been taken advantage of is not illegal, but it sure “stinks”. Jim Press is the top executive for Toyota over all of North America and he is also the only non-Japanese to occupy a place on Toyota’s board of directors. He was quoted in the book, The Toyota Way by Jeffrey Liker, as saying “It’s what you do for a customer when you don’t owe him anything that is the true measure of character. It’s like sticking up for somebody who can’t defend himself”. I really like this quote and I have it engraved on a plaque which I give out each month to the employee who wins the “Above and Beyond Award”. This award goes to our employee who does something for her customer above and beyond what the customer would have expected.



If you have a bad dealing with your car dealership, do your best to contact the owner. This is impossible with publicly held dealerships like AutoNation and United Auto Group, but you should be able to talk to their General Managers. If it’s privately owned dealership, don’t give up until you see the owner.

Follow-up Letter to Florida Law Enforcement

Dear Florida law enforcement officers,

After hearing feedback from the readers of this blog, newspaper columns, and my radio show, I’m amending my original letter to you (shown below).

I agree with my critics that tell me I should not make Florida motorists suffer because of the apathy and abdication of duty by Florida legislators. I asked you, our law enforcement officers that patrol Florida roads, in my original letter below, to ticket those driving cars with dangerous safety recalls. My reasoning behind this request was to get the attention of the legislators that have been ignoring this danger to Florida motorists. I reasoned that the outrage by motorists, most of whom also VOTE, would frighten our legislators into the action they should have taken two years ago…MAKE IT ILLEGAL TO SELL A VEHICLE WITH A DANGEROUS SAFETY RECALL.

However, I see no reason why every Florida motorist shouldn’t be advised by the Florida Department of Highway Safety & Motor Vehicles (FLDHSMV) if their car has an unfixed dangerous safety recall. This can be done simply by computer. The FLDHSMV has the name, address and VIN number of every Florida driver. By running this information through the database of the National Highway Traffic Safety Association (NHTSA), every Florida motorist driving a dangerous car can be notified by certified return receipt mail within a few days. All Florida drivers should then be required to show proof of that the safety recall has been fixed before the state will renew their license and registration.

Earl Stewart 


Since Modified as Shown Above ↑
Open Letter to all Florida Law Enforcement Officers Ticket all vehicles with open safety recalls:


Dear Florida law enforcement officer,

If you’re with the Florida Highway Patrol, County Sheriff’s Department, or local city police, you’re empowered by Florida law to issue citations and warnings to unsafe vehicles on Florida’s roads. You typically exercise this duty by citing drivers of vehicles with faulty tail, brake, and head lights, unsafe tires, or even a noncompliant license plate frame.

My suggestion to you is to prioritize citing drivers of vehicles with dangerous safety recalls, especially Takata airbags. There are more deaths and injuries from defective Takata airbags in Florida than all the other 49 states. This is because of Florida’s above average heat and humidity which causes the airbag inflator to EXLODE, sending shrapnel throughout the inside of the vehicle, killing and maiming passengers. Furthermore, SEVENTY-FIVE PERCENT of the cars on the roads with safety recalls have never been repaired. Most of these dangerous cars are older and are being driven by a 2nd, 3rd, 4th or later owners. The manufacturers of these cars are unable to contact most of these endangered drivers because of old, inaccurate addresses. There’s also the apathy of many drivers to take the time to bring their car in for repair. Lastly, thousands of vehicles on the road, especially those with defective Takata airbags, have NO FIX AVAILABLE. The huge Takata airbag recall demand has exceeded the manufacturers’ capacity to build the airbag inflators. Some vehicle owners are waiting over a year for a replacement airbag.

Your squad cars are equipped with sophisticated computers which can cross-reference the license plate number of any vehicle on the roads and display the VIN, vehicle identification number, aka serial number. You have direct access to the National Highway Traffic Association’s (NHTSA) database (www.SaferCar.gov) This source, with the VIN, tells you if the car you’re driving behind has an unfixed Takata air bag or any other dangerous safety recall. The NHTSA data base will also tell you IF there is a fix available for this recall.

I suggest that you first issue a warning to all drivers of vehicles with unfixed safety recalls, giving them 7 days to have the vehicle repaired; if they fail to comply, issue a suspension of their driver’s license. If the NHTSA database tells you that the safety recall has no fix available, you should require the driver to drive immediately to the nearest dealership of his vehicle’s make and rent a car or receive a free loaner.

Thank you for taking the time to read this letter. I’m going directly to you, our Florida law enforcement officers, because our governor, legislators, and regulators have all let us down. Clearly, it should be illegal to sell a car with a dangerous safety recall, but our governor and lawmakers will not act. At the very least, it should be required that the buyer of a car with a dangerous safety recall be advised prior to sale, this has not been done either. Therefore, thousands of used cars with dangerous safety recalls are being sold to unsuspecting Floridians daily.

I believe you have the authority and the responsibility to take dangerous vehicles off the road and you can exercise this authority under our existing laws without waiting any longer for the politicians and regulators to act. Furthermore, I believe your action will put the pressure on the politicians, regulators, auto manufacturers and car dealers to do the right thing. The legislators and regulators have “sat on their hands” because of the huge lobbying efforts by auto manufacturers, car dealers, and their associations. Once the drivers of Florida, most of whom are also VOTERS, begin to be pulled over by law enforcement and warned or have their license suspended, you will see our politicians and regulators suddenly begin to do the right thing.

Thanks very much for considering my suggestion,



Earl Stewart