What is MSRP?

What is MSRP?

Written by Chrissy Kapralos
Fact-checked by Caitlin Wood
Last Updated October 6, 2020

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 licensing 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. 

New vs. Used Cars

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. 

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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 it’s 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 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. 

Car Loan Glossary

Terms
Add-Ons

Any features or services that are applied on top of the base price of a car are considered add-ons. These can include things such as tinted windows, heated seats, leather seats, alarms, and wheel locks, to name a few.

Base Price

The base price of a car is the cost of the vehicle without any upgrades or added features that can be added after the car is ordered from a dealership. Only standard equipment and the manufacturer’s warranty are included in the base price, but any other fees will be added afterward.

Certified Pre-Owned (CPO)

CPO cars refer to used cars that have been certified, either by the dealership selling the car or the manufacturer of the vehicle. This gives consumers confidence knowing they are buying a used vehicle that is in good condition. When a used car is obtained by a dealership, it is inspected by a certified mechanic. The car is then repaired if it meets the required standards and is then ready to be sold as a CPO vehicle.

Clear Title

A clear title means that the owner of the car has a free and clear title and no longer carries a balance owing on a car loan. There are no liens of the title or levies from creditors.

Dealership

Auto dealerships are businesses that are authorized to sell new or used automobiles to consumers and serve as a direct dealer for automakers

Dealership Financing

Consumers can obtain dealer financing to help fund the purchase of a vehicle. A contract is signed with a dealership that requires a consumer to pay for a specific amount plus interest and funding fees over a certain period of time. Dealers will send the details of the consumer’s financials to various lenders to find one that will approve the loan.

Depreciation

Depreciation refers to the decline in the value of a vehicle. Immediately after purchase, a vehicle will become less valuable as soon as it is used. Put another way, depreciation is the rate at which an automobile loses its value over time

Extended Warranty

Vehicles come with a manufacturer’s warranty when purchased, but buyers can choose to purchase an extended warranty. This serves as a form of insurance policy on the vehicle to cover the cost of potential repairs in the future. An extended warranty is usually good for a certain period of time and/or mileage.

Lease

A contract that allows an individual the right to use or occupy a property for a specified period of time in exchange for a monthly payment. Leases are common for a property like apartments and vehicles. The individual on the lease does not own the asset at the end of the lease’s term, it is strictly for rental purposes.

MSRP (Manufacturer’s Suggested Retail Price)

Car manufacturers will offer recommendations on how much a car should be priced at the retail level, known as the manufacturer’s suggested retail price, or MSRP. The purpose of the MSRP is to standardize pricing in the automobile industry so that there is not a lot of fluctuation in price from one dealership to another.

Title Loan

A title loan uses the vehicle title as a form of collateral to secure a loan. Borrowers must own their vehicles free and clear and no longer owe any amount on a car loan. A lender will place a lien on the car title in exchange for funds. If the borrower defaults on the loan, the lender can take possession of the vehicle and sell it to cover any losses.

Trade-in Allowance

A trade-in allowance is the amount that a car dealer will reduce the cost of a new car purchase by after the consumer’s old vehicle has been traded in. It is somewhat like being given credit from the sale of an existing vehicle that is then applied to the purchase of a new vehicle.

Trade-in Value

A trade-in value is the amount that dealerships offer consumers for their vehicle and is typically applied toward the purchase price of another vehicle. Dealerships will assess the value of the vehicle and will base the amount that can be applied to a new car purchase. The consumer will then trade in the old vehicle and the assessed value amount will be deducted from the price of another vehicle. Trade-in value is often different than what the vehicle may be worth when sold in the open market.

Vehicle Identification Number (VIN)

Every vehicle will have its own unique vehicle identification number, which is used to identify a specific vehicle. No two vehicles will have the same VIN, making them easily identifiable with this unique 17-character code.


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Chrissy is a Toronto-based communications advisor. With an English degree from the University of Toronto and editing courses under her belt from Ryerson University, she has continued her lifelong passion for writing and editing. In addition to working for Loans Canada on a variety of financial topics, Chrissy has a few years of resume writing and editing under her belt, and takes great pleasure in helping people find work that fits with their experience and passions. When she isn't working, you can find her practicing yoga, hanging out with her dog, reading up on financial and real estate news, or planning her next trip abroad.

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