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Motor Vehicle Industry Overview - Industry Terms

Affected IRM: X.XX.X

"This document is not an official pronouncement of the law or the position of the Service and cannot be used, or cited, or relied upon as such."

Industry Terms


Advertising Fee

An amount added to the invoice price of a vehicle by the manufacturer to be used in general or specific advertising by the manufacturer and/or dealer.
Some manufacturers return a portion of the advertising fee to the purchasing dealer’s regional advertising association.
Some manufacturers allow dealers to request that an amount in addition to the manufacturer’s advertising fee be added to the invoice.

  • The additional amounts might be immediately returned to the dealership or the dealership’s designee.

Advertising Association

An affiliation of dealerships representing the same manufacturer in the same geographical area (city, county, state, etc.) that places cooperative advertising.

  • The association receives a portion of the advertising fees included on a vehicle’s invoice plus any additional amount the dealership requests the manufacturer to include.
  • The association may return a portion of the advertising fees that it receives to the participating dealerships.


An agent is one who represents and acts for another, whose function is to bring about, accept performance of, or terminate contractual obligations between a principal and third persons.  As it relates to Extended Service Contracts, Warranties, etc, an agent is one who represents and acts for another, whose function is to bring about, accept performance of, or terminate contractual obligations between a principal and third persons.


A sale of used vehicles operated by independent auction houses or vehicle manufacturers.
Generally, auctions are not open to the public and may be limited to dealers in a specific type of vehicle.
Auctions provide an opportunity for dealers to dispose of slow moving vehicles or acquire additional inventory for sale.


Manufacturers, wholesalers, and retailers that provide replacement parts and customization for vehicles.

Back end

The fixed operations of an automobile dealership; i.e. body shop, service department and parts department.

Back end distribution

An amount paid by a finance company to a dealership upon transfer of the dealership customers’ financing notes, when certain requirements have been met.
In some sub prime financing arrangements, the transferring dealership receives back end distributions when advance amounts have been fully repaid, the finance company has recouped expenses, and certain other criteria are met.

Base Model Code Number

Identifies an item of inventory which is determined by using the entire manufacturer's base model code number that represents the most detailed description of the base vehicle's characteristics under the Alternative LIFO.

Base Price

The cost of a vehicle without options, but including standard equipment, factory warranty, and freight.

Base Vehicle Cost

The cost of a vehicle for Alternative LIFO Method computations that is not adjusted for any options, accessories or other costs. The pool index computed from only the base vehicle cost of vehicles is applied to the total vehicle cost, including options, accessories and other costs of all vehicles in the pool at the end of the taxable year. 

Bird Dog Fee

A finder’s fee paid to someone who refers a customer to a dealership.

Body-On-Frame Construction

A method of car design in which the body, engine, driveline, and suspension are bolted to a weight-bearing frame.

Buy Rate

The rate set by a financing institution, for which it will purchase dealership customer loans.

Capitalized Cost

The total value for a vehicle upon which a lease is based.
Similar to the selling price of a purchased vehicle.

CCR (Capital Cost Reduction)

The amount paid in cash and/or trade-in at the inception of a lease. Similar to a down payment.

Car Jacket

A separate folder for each new vehicle sold which contains documentation pertaining to this particular transaction.


Changes to a vehicle model  for a new model year limited to the following:  

  • Vehicle model identical to the model sold the previous year except:
    • New color or seating fabric may be offered.


Originally the frame of the car which provided the strength of the vehicle to which the body, engine, driveline components and suspension were attached.
Currently, few vehicles other than trucks have separate frames, and the chassis structure is incorporated into the body components in what is known as a shell or unibody construction.

Closed End Lease

A lease for which the amount representing the residual value of the vehicle at the end of the lease is mutually agreed upon within the lease document.

  • Risk of depreciation greater than anticipated is born by the lessor, the company leasing the vehicle.

Contracts in Transit

Notes receivable for vehicle sales or leases that have been approved by a financing institution but for which a dealership has not yet received the proceeds.


A non-functioning part usually with replaceable components removed.

  • Non-functioning parts awaiting removal of their damaged components are sometimes referred to as "dirty cores”.

Core Charge

An amount that the purchaser of a remanufactured part must pay to the selling company if the purchaser does not provide a non-functioning part (core).

  • The core charge may be separately stated on the invoice for the remanufactured part.
    • Typically, the purchaser has a time period in which to provide the non-functioning part (core).
    • If the customer does not return the non-functioning part (core) within the required time period, the company selling the remanufactured part issues an invoice to the customer for the core charge. 

Cost Segregation

The reallocation of building costs from 39 year to 5, 7, or 15 year MACRS property


The authorized (franchised) sales and service representative of a motor vehicle manufacturer/importer.

Deal Jacket, Folder, or File

A file set up for each vehicle sale that contains all of the paperwork relating to the sale.


A vehicle held for sale by a dealership but made available to customers for test-drives.
Demos are also frequently provided to dealership employees and some family members.


A company in the that distributes, regionally or nationally, vehicles built by a foreign manufacturer.

Domestic vehicle

A vehicle produced in the United States, Canada, or Mexico

Enrollment Fee

Generally, dealers must pay an enrollment fee to enter into an agreement to transfer notes to a finance company.

ESC (Extended Service Contract a.k.a. Vehicle Service Contract)

An aftermarket product that for an additional price, provides coverage for the repair or replacement of covered components at minimal or no cost.

Floor Pan

The metal structure on the bottom of the car.
Almost all cars are "unit body” (unibody) construction and the floor pan provides the foundation for chassis stiffness.
The driver’s feet usually rest on the floor pan.

Floor plan line of credit /Floor Plan

An arrangement through which a dealership borrows money from a financing institution (frequently a subsidiary of the manufacturer) to finance its vehicle inventory. 
The vehicles are used as collateral for the loan.

Floor Plan Assistance or Allowance

An amount paid by the manufacturer to the dealership for the interest expense charged under the floor plan agreement for the time that the vehicle was in transit from the factory to the dealership. 
It may also be an amount paid by the manufacturer or financial institution to the dealership based on an interest free period or reduced rates for a prescribed time to encourage faster turn over.

Flooring Statement

Statement issued by lending institutions reflecting amount of credit extended to a particular dealership for vehicle purchases.  
Other information, such as identification of specific vehicles being financed, can also be found on these statements. 


A contract authorizing a person or persons to represent a vehicle manufacturer/importer for sales and service for a specific period.
Auto dealership franchises are personal service contracts that require manufacturer/distributor approval of the individuals that will operate the dealership. 


Changes to a vehicle model for a new model year limited to the following:

  • Sheet metal untouched; may include new grille, fascia, or headlight/taillight treatments.

Front End

New and used vehicle sales departments.


An amount (generally 2-3 percent of adjusted MSRP) included in the vehicle invoice amount.
 Manufacturers repay the holdback amount to the dealership on a quarterly or monthly basis.


A vehicle produced outside of North America and sold in North America

Invoice Price

The manufacturer’s initial charge. 
The invoice price might not reflect the dealer’s final cost due to rebates, allowances, discounts, and incentive awards the dealer might receive.

Light Vehicle

A car or truck with a gross vehicle weight of 14,000 pounds or less.

MSRP Manufacturer’s Suggested Retail Price

The recommended selling price for a vehicle and each of its optional accessories.

Manufacturer’s Statement of Origin (MSO)

A manufacturer’s document that assigns ownership of a new vehicle to the dealership.
Also known as a Manufacturer’s Certificate of Ownership (MCO).


Brand name of a car or truck; e.g., Chevrolet, Dodge, Mazda.


An arrangement to reduce manufacturing costs by taking advantage of the lower costs of labor, plant, and equipment in Mexico
Under the Maquiladora Program U.S. taxpayers can have up to 100 percent foreign ownership without prior approval from the Mexican Government
U.S.  taxpayers can sell the completed products directly out of the Maquiladora operation.


Body style
4-door sedan, convertible, 2-door hatchback, station wagon.

Money Factor

A percentage representing the cost of the money required to lease a vehicle, similar to the interest rate paid on a loan.


The National Automobile Dealers Association.  Is an organization whose purpose is to serve as a network catalyst of information which is disseminated to member dealers and as an advocate in Washington for dealership interests.


Name given a vehicle by its manufacturer; e.g. Civic, Mustang, Intrepid. (Line is a synonym for a nameplate.)

New Item Category

A new item category as defined for Alternative LIFO, is an item category not considered in existence in the prior taxable year, is one of the following (i) any new or reassigned manufacturer's model code, as described in IRM section 4.02(3), that is caused by a change in an existing vehicle or (ii) a manufacturers model code, as described in IRM section 4.02(3), created or reassigned because the classified vehicle did not previously exist.  Additionally, if there is no change in a manufacturer's model code, but there has been a change to the platform that results in a change in track width or wheel base, whether or not the same model name was previously used by the manufacturer's, a new item category is created.  New items are found in all LIFO computations, not just in Alternative LIFO.

Official Used Car Guide

A guide book or electronic presentation of the wholesale, retail, and loan value of used cars 
The “official” designation is added by the guide’s publisher and/or common industry use.
It does not designate any specific approval process or governing board.

Open End Lease

A lease for which the lessee must pay any difference between the residual value of the leased vehicle  and the fair market value, if the fair market value is lower, at the end of the lease.

Out of Trust

The result of a dealership selling a vehicle but not paying off the related floor plan liability within the time specified in the floor plan agreement. 

PEP Cars

Product Evaluation Program – vehicles are provided by manufacturers and/or distributors to employees who provide comments regarding the operations of the vehicles. 


The main structural element or backbone of a vehicle to which the suspension, power train, and body are mounted. 
In older vehicles, it was traditionally the frame; in newer unibody vehicles, it is the lower, horizontal sheet metal stamping.


A designation generally used to describe high quality finance contracts  (A and B contracts).

Preparation Charges

Charges imposed by a dealer for preparing a newly purchased car for delivery to the buyer.
Typically includes filling the gas tank, verifying appropriate fluid levels, last minute touch-up cleaning, etc.


Changes to a vehicle model for a new model year limited to the following:
New platform 
New interior and exterior styling
Engine and transmission could be carryover from previous model year.

Report of Sales Book

A record kept by auto dealerships of all sales made and reported to the Department of Motor Vehicles, as required by state law.  For example, in  California , all sales must be reported within 5 days of sale in order for the vehicles to be registered.

Residual Value

The amount agreed upon to represent the value of the leased vehicle at the termination of the lease period.
Generally the amount of depreciation in the vehicle’s value predicted during the term of the lease.


Changes to a vehicle model for a new model year limited to the following:
Minor styling changes to sheet metal
Front and/or rear styling changed from previous year.


Changes to a vehicle model for a new model year limited to the following:
Same platform as previous year, but extensive changes to exterior and interior design 
Looks totally different from previous model year.

Shuttling Service

To transport vehicles to and/or from the dealership; hence a car shuttler is a person who performs those services.


Amounts paid in cash or merchandise by a dealership to employees to stimulate and/or reward employees for meeting sales volumes or other criteria.

Sub Prime/Non Prime

Generally describes finance contracts for less creditworthy customers.  (C& D Credit)

Tier 1, 2, & 3 Suppliers

The hierarchy of suppliers in the automotive industry. 
Tier 1 suppliers provide components, systems, and parts directly to the manufacturers.
Tier 2 suppliers provide components, systems, and parts to Tier 1 suppliers.
Tier 3 suppliers provide components, systems, and parts to Tier 2 suppliers.

Trade-in Value

The amount that the dealership will credit the customer for a vehicle as a partial or full payment on another vehicle.
The trade-in amount is usually about 5 percent below the wholesale value of the vehicle.


A foreign manufacturer’s U.S. manufacturing and/or assembly facility.

Unibody Construction

A manufacturing process where sheet metal body parts are combined with stress-bearing elements to form the body and chassis as a single piece, as opposed to attaching body parts to a frame.

Warranty Repairs

Repairs made under a warranty contract that the manufacturer pays the dealership to make.
The manufacturer sets the rates that the dealership can charge. 

Chapter 3 | Table of Contents | Chapters 5, 6, & 7

Page Last Reviewed or Updated: 06-Nov-2014