When a customer finances a vehicle through a dealership, the dealer often works with various lenders to secure a loan. The lender provides a "buy rate" (the interest rate offered to the dealer), and the dealer marks up this rate to the customer. The difference between the customer’s interest rate (the "contract rate") and the buy rate is the Dealer Reserve.
- Buy Rate: The interest rate from the lender to the dealer.
- Contract Rate: The interest rate charged to the customer.
- Reserve Amount: The difference between the buy rate and the contract rate, retained by the dealer.
Synonyms:
- Finance Reserve
- Rate Participation
- Dealer Participation
Departments:
- Finance and Insurance (F&I) Department: Primarily handles and benefits from dealer reserve by arranging vehicle financing and managing the mark-up on interest rates.
- Sales Department: Collaborates with F&I to present financing options to customers.
- Accounting Department: Tracks the reserve as part of the dealership’s profit from financing deals.
Importance of Dealer Reserve in Dealerships
Dealer Reserve is a significant source of profit for dealerships, providing additional revenue beyond the sale of the vehicle itself. It also allows dealerships to offer competitive financing rates to customers by negotiating buy rates with lenders and adding value through their financial services.
Dealer Reserve, commissions, who cares?!
Understanding Dealer Reserve is crucial for anyone involved in dealership finance operations. It impacts the dealership's profitability, customer satisfaction with financing terms, and the overall financial health of the dealership. For F&I managers, mastering dealer reserve practices can significantly enhance their department's contribution to the dealership's bottom line.
Dealer Reserve can play a critical role in commission calculations for F&I managers and finance personnel. By accurately tracking and managing dealer reserve amounts, Nimble Compensation can ensure precise and fair commission payouts, aligning incentives and enhancing profitability.
Looking to maximize your Dealer Reserve?
Stay tuned. We'll share some recommended industry resources to make the most of your reserve!
