A car dealer's main sources of profit, in no particular order, are: the new vehicle's purchase price; trade-ins and resulting used-car sales; financing and insurance; "back-end" products and services, such as rustproofing and service contracts; and vehicle service (repair and maintenance).
Here, we'll deal with the first two of those factors: the new car's purchase price and your old car's trade-in value.
The price you pay for a new car hinges on a number of variables. They include but aren't limited to: the invoice price; dealer holdback; customer incentives; factory-to-dealer incentives; supply and demand; and your car's trade-in value (in some states).
For most vehicle makes, the published invoice price is not the true dealer cost because of dealer holdback. Holdback is a portion of a car's sales price (typically 2 percent to 3 percent of either the invoice price or MSRP) that an automaker returns to a dealer, usually on a quarterly basis.
It's a way of boosting the dealer's cash flow and helps the dealer keep his lights on. Most dealers see holdback as something that they're entitled to. In a general sense, everything is negotiable, but this is one item on which dealers seldom budge. And we mean seldom. If a dealer claims he wouldn't make any money on the deal you propose, you may be able to use your knowledge of dealer holdback to call his bluff.
Most car shoppers are aware of customer incentives -- cash-back rebates and, usually, low-interest financing as an alternative. Lesser known are the factory-to-dealer incentives that reduce the dealer's true cost to buy the vehicle from the factory. source : By Joe Wiesenfelder, Cars.Com
