Short for Manufacturer’s Suggested Retail Price, the MSRP is the price that the manufacturer of a specific vehicle recommends a retailer sell it at. If you are shopping for a car, you are bound to come across this acronym. With a proper understanding of how an MSRP is calculated, you can put yourself in a better position during negotiations. While the MSRP does factor into the price of the vehicle, it is more of a jumping-off point than a fixed amount you can expect to pay. By gaining a full understanding of how these calculations work, you can make better-informed purchase decisions.
What Is MSRP?
The MSRP differs for every vehicle; though, since it is specific to the make and model, it will be the same for each dealership you visit. The MSRP is helpful since auto dealers are legally mandated to provide that information. It factors in the specific retail value of the automobile, though does not necessarily mean that is what the dealership will charge you.
Do Retailers Change The MSRP?
Whether you are dealing with an independent dealership or one affiliated with a specific manufacturer, the MSRP process is the same. Keep in mind that this is only true of new vehicles. The manufacturer creates the vehicle and licenses the rights for sale to the individual dealerships, which are operated by a third-party. Amongst the criteria for the agreement is to show buyers the MSRP somewhere on the vehicle.
Different than a sticker price, MSRP is merely a suggestion from the manufacturer. The rest falls to supply and demand, fluctuating with the state of the market. In just about every case, the sticker price will vary between dealerships. This enables market competition and allows multiple dealerships to profit, preventing a monopoly in the market.
However, while the price differs, it will usually be within a reasonable range of the actual MSRP. It is an end-consumer recommendation that does not impact what the dealership pays at cost. As a result, you can often find prices that are lower (and also those that are higher).
In keeping with standard market control mechanisms, the more popular an item is, the more it tends to cost. This means that, if the car has received a strong marketing push, you can expect to pay more and have more trouble negotiating a reduced price. Another reason for a higher price is the add-ons a vehicle may include. The MSRP refers to the standard components of the vehicle. It doesn’t span things like seat warmers, remote starting features, and other add-on benefits.
When you’re looking for lower prices, there are a couple of things to consider. First, choose a proven car that may be receiving less attention. The dealership paid the manufacturer to buy the car; so, if it sits for too long, taking up space instead of selling, the retailer will likely be more motivated to reduce the price.
Bear in mind that the price will never get below the cost paid by the dealership (otherwise it would result in a loss). While there are times a dealership will desperately need to move a car to free up real estate, it is quite unlikely. If you are looking to save money, consider opting for a base model. Since there are no bells and whistles, it is harder to justify a deviation from the MSRP.
What Costs Aren’t Included In The MSRP?
When it comes to purchasing a car, there are countless acronyms and terms that you’ll come across, especially when it comes to the price of the car. Most of these terms are confusing and only make sense to those in the auto industry. Let’s take a look at all the terms you might hear when shopping for your next vehicle.
Sticker Price
This refers to the listing price of the vehicle at the specific dealership. While it will likely be within the range of the MSRP, it is not often the same. This differential leaves you room to negotiate a better rate. Depending on the special features of the car and any current marketing pushes, the amount could be either lower or higher.
Invoice Price
When the dealership gets the car to sell, they buy it from the manufacturer. This cost is called the invoice price. To see a profit from the sale, the sales price must be higher than the invoice price. In select situations, the dealership may sell it at cost, though these are few and far between.
Registration Fees
Varying based on location, registration fees reflect the cost to legally own the vehicle and operate it. These costs are different from insurance and extended warranty prices.
Base Price
This is the cost of the vehicle without any bells and whistles, simply the standard make and model, it is similar to the MSRP. It is the starting price for the vehicle, free of any additional features (and the associated costs).
Sales Price
After negotiations, the price at which you purchase the vehicle is the sales price. In almost all cases, it is somewhat different than the MSRP, the sticker, and the invoice price. This is the amount you are either paying in cash or for which you’re taking out a car loan.
Payment Price
This is the amount that you are responsible for paying according to the loan agreement. Arrangements available for bi-weekly and monthly payments are the most common, though there are weekly agreements as well. The amount of your monthly payment is proportionate to the size of the loan, the term, and your down payment.
Where Can You Find the MSRP On A Car?
There are different ways to find the MSRP of the vehicle you are pursuing. You can check online through the manufacturer. That can highlight for you the MSRP on the specific vehicle. This number will go unchanged when you go from dealership to dealership. However, when you approach a new car purchase, you will always have access to this information.
Find out what dealerships do with unsold cars?
Indicating the MSRP is a part of the licensing agreement between the manufacturer and the dealership. For this reason, you will always be able to access the information. That said, the dealership will often call more attention to the sticker price of the vehicle. Whether by size or with bright colours, the sticker price is almost always more visible. Ensure that you know whether you are seeing the MSRP or the advertised price point.
When in doubt, ask the sales representative. Providing you with full information is a part of their job, and the MSRP is an essential component of negotiations. Inquire as to what the MSRP is and learn about any rebates and add-ons that justify the sticker price.
Finally, if you are purchasing a used vehicle, it can be tricky to find the original MSRP. It is also less useful in this situation since the value of the car depreciates over time. However, it can give you an idea of the car’s original value. When used comparatively against other cars sold at this time, the MSRP can be helpful information. In most situations, you can find this information online.
Find out how you can check the history of a used car.
Is The MSRP A Good Price?
Whether or not to pay the MSRP depends on many different factors. These include the vehicle’s popularity, the special features, and the current economy. If the car is in high demand and comes with a lot of different features, then you may be asked to pay more than the MSRP. On the other hand, if the vehicle is a less popular model for the current year you can usually negotiate.
Check out which cars have a high trade in value.
To be sure that you are getting a fair point, gather all the information you can about the vehicle. Investigate the MSRP, the value of each add-on, and its position on the market. All of these factors taken together will give you real numbers that you can contrast against the price you are paying. Usually, the MSRP is a fair cost for a base model. However, that doesn’t mean you can’t negotiate for an add-on like a remote start.
How Much Can You Negotiate Off The MSRP?
It is common to aim for within three to five percent of the invoice price. Do your research ahead of time to get a full picture of the vehicle. By using real numbers to communicate with the salesperson, you put yourself in a better position for negotiation. Since this percentage profit is fairly standard for the automobile industry, you are likely to close the deal. Depending on the popularity of the vehicle, you may look at a higher amount (4.5 or 5%). Provided you negotiate and make it clear that you are serious about the purchase, you can usually negotiate down from the MSRP to a small degree.
Final Thoughts
Now that you are familiar with the ins and outs of manufacturer suggested retail prices for new vehicles, you can put yourself in a better negotiating position. Simply because the MSRP is recommended doesn’t mean that is the amount you have to pay. It does, however, provide you with an industry-standard, and access to real numbers that are objectively supplied. Provided you use the MSRP as a starting point for your sales price negotiation, you are off to a great start.
