An Inside Look at What MSRP Really Means

Everything you ever wanted to know about MSRP related to buying a car.

Take a look at the stickers on the windows of vehicles for sale and you will find the MSRP listed. MSRP is an acronym that is short for manufacturer’s suggested retail price, also referred to as, “sticker price,” “list price,” and “asking price.”

The price listed is not guaranteed to be the price at which the vehicle actually sells for. Below, I demystify MSRP, explaining exactly what it means, how it is determined and whether it makes sense to pay full MSRP for a car, truck or SUV.

Table of Contents

A plain english definition of MSRP

The MSRP is the suggested vehicle sale price. You can find the MSRP posted to an information sheet on the side window of the vehicle you are considering for purchase or lease. In short, the MSRP is the dollar amount the vehicle manufacturer suggests that the dealer sells the vehicle for.

If the vehicle you are considering does not have a MSRP listed on the window sticker or information sheet, do not hesitate to ask one of the dealership’s sales professionals as to what the MSRP is for the vehicle you are considering.

Car Buying Tip: Many times a dealer will add an addendum sticker that looks very close to the manufacturer’s sicker on the vehicle. Do not mistake the addendum sticker price for the true manufacturer’s suggested retail price of the vehicle.

How is MSRP determined?

Though few people outside of the auto industry know it, there is a federal law on the books that mandates dealerships show the MSRP of every vehicle for sale on the lot. The MSRP is the suggested price for the vehicle model based on the features of its trim.

Some auto dealerships list the manufacturer’s suggested retail price for the make and model’s midrange trim as it is the midpoint between the base trim and the most luxurious trim that features interior niceties, high-tech bells and whistles and other add-ons that can be tacked on for additional money.

It is particularly interesting to note retail products aside from cars have MSRPs though there is not a federal law on the books that mandates retailers display those MSRPs as is required with automobiles.

Let’s take a closer look at an example of MSRP to further clarify what this acronym means and why it is so important in the context of car sales. Consider a situation in which you are car shopping and find a gorgeous new luxury sedan with a MSRP of $50,000.

The dealership prices the vehicle at $54,500. The MSRP is lower than the proposed sales price so you will feel as though you are paying more than you should for the vehicle. Though there is no guarantee the dealership will bring the sale price of the vehicle all the way down to the MSRP of $50,000, it is in your interest to try to negotiate the sale price of the vehicle down toward the posted MSRP or even lower if possible.

Car buying tips you should know

The true cost of a new car from a dealer and the factory invoice price are not the same. The dealer’s cost is less than the invoice price.
Knowing the dealer’s costs puts you on a level playing field when it comes to negotiating the best price with the dealer.
Always negotiate up from the dealer’s cost and not from MSRP (or above) down.
Take advantage of free no-cost online services to check what vehicles are currently selling for in your local area.
Read my reviews on the top online car shopping sites: RydeShopper, Edmunds, MotorTrend and CarsDirect.

What is not included in MSRP?

The vehicle sticker price does not include costs the buyer is required to pay to purchase the vehicle. The MSRP sticker does not account for the destination charge. This charge is the cost the automaker charges to the auto dealership to transport the vehicle from the factory all the way to the dealership lot. This charge is non-negotiable.

There are many additional dealership fees that are not included in the MSRP. Examples of these fees include:

Dealer prep fees
Marketing fees
Sales documents fees

The MSRP does not include add-ons such as paint protection, VIN etching and pin striping. Nor does the MSRP account for vehicle added options installed by the dealer.

Where is the MSRP posted on a new car?

MSRPs are made visible on the side windows of new vehicles at automobile dealerships. The sticker that displays the MSRP is called the Monroney sticker, named after a Senator who sponsored the law that requires the display of the MSRP on new automobiles sold at all dealerships. As noted above, federal law requires that the MSRP of new vehicles for sale is clearly displayed.

However, it is important to note used vehicles do not always have the MSRP posted as they have changed hands once or several times in the prior years, meaning the manufacturer suggested retail price might not mean much.

However, if you search the internet for the MSRP of the used vehicle you are considering, you might be able to find that figure for the specific make, model and year.

Should you pay manufacturer’s suggested retail price for a car?

There is no concrete answer to this question. The amount of money you pay for a vehicle depends on a litany of factors ranging from your budgetary limitations to the state of the auto market and the availability of the automobile make and model you have in mind. In general, the MSRP is a beginning point for the car dealership for negotiations.

However, dealers have the right to ask more or even less than the MSRP posted on the window. A vehicle that has sat on the lot due to minimal demand has the potential to sell below MSRP or even dealer cost.

Alternatively, a vehicle that is in considerable demand might sell for significantly more than the posted MSRP. Dealer’s do this by adding a “market adjustment” charge to the addendum sticker on the vehicle.

Assess the current market conditions including the supply and demand for the vehicle make and model you have in mind and negotiate accordingly. Do not lose sight of the fact that the operative word in the acronym of MSRP is “suggested”, meaning it is the manufacturer’s recommended price point.

Car Price Quotes

Use my recommended tools to find the best deals in your local area.

Rydeshopper
Edmunds
MotorTrend

Find the dealer with the lowest price and save. When dealers compete = You WIN!

The difference between MSRP, factory invoice price and dealer cost

MSRP is not the same as dealer invoice price. Invoice price is the dollar figure the dealership pays to the manufacturer for the automobile on paper. As an example, a vehicle with a $25,000 MSRP is likely to have a dealer invoice price around $23,000. This means the auto dealer paid $2,000 less than the MSRP to acquire the vehicle.

In general, the more costly features added to the vehicle, the greater the difference will be between the dealer’s invoice price and the price at which the vehicle is sold… and just so you know, dealer invoice is not the absolute bottom dollar a dealer pays for a new car from the manufacturer.

The formula for figuring a dealer’s true new car dealer cost is:

Dealer invoice price – dealer holdback – rebates and incentives (if available) = true dealer new car cost.

How much below MSRP is a good deal?

For the majority of the car buying public, if you can snag a new vehicle for less than the MSRP displayed on the side window, you are getting a fair deal. For the most part, auto dealerships are unwilling to sell vehicles without a “fight” for less than the MSRP. Plenty of those who work in the auto industry insist buying a vehicle at or near the MSRP is a good deal. Of course they’ll say that… they work in the industry.

However, if you do your research, as you are right now. You will find that you can find great deals on new and used cars by just doing a little online car shopping. Savvy car shoppers have used free online sites for well over a decade to create online bidding wars between dealers to guarantee they pay the lowest price in their area.

Above all, what matters most is the market dynamics. If there is considerable supply and low demand, you might be able to buy well below MSRP and possibly even under factory invoice. If supply is low and demand is high, buying the vehicle at or slightly above the MSRP is considered a good deal.

The best strategy is to use free no-obligation sites such as Ryde Shopper, Edmunds and MotorTrend to “test” the market and see what new or used cars are selling for in your local area.

Can dealers sell a vehicle over MSRP?

Yes! In fact, at the time of this article, selling a vehicle over the MSRP is becoming increasingly common as supply decreases and demand increases.

Computer chip shortages, a spike in demand, a reduction in vehicle supply and even historically low gas prices all have the potential to elevate the sale price that much higher than the MSRP.

Uneducated car buyers are another way for dealers to sell a car for far more than the MSRP listed. Not doing your homework and new car research online upfront will allow an unscrupulous dealer take advantage of you.

The bottom line is auto dealership owners and sales professionals are in business to make money. This is precisely why vehicles are often sold above the posted MSRP when a dealer can get away with it. For the most part, most car purchases end up falling somewhere between the MSRP and the dealer invoice price. The old saying in the auto sales industry is, “you can always come down on price… but you can never go up.”

However, if the model is brand new and has a high demand, it has the potential to sell for a price that is several thousand dollars above the MSRP. In particular, larger vehicles and those of the luxury variety tend to sell at a dollar figure that is higher than the posted MSRP as they have comparably high profit margins.

If the vehicle is comparably small and less expensive, the dealership’ profit margin is likely to be more narrow, meaning there is not much room to negotiate the price between the dealer’s actual cost and MSRP.

When it comes to used vehicles, the final sale price of a vehicle is also shaped by the wholesale cost. If the dealership purchased a large number of the make and model you are attempting to buy, this bulk purchase was likely made at a discount, presenting an opportunity for prospective buyers to negotiate the price down well below the MSRP.

If the group of vehicles was purchased in a smaller quantity through a distributor, there is a good chance the dealer paid a comparably high premium, meaning there will be less flexibility in terms of negotiations.

Use your knowledge of MSRP to your advantage

Now that you know what MSRP means, you can use it to your advantage when car shopping. Print out this MSRP guide, read it over a couple times and refer to it as you shop for your new automobile. Use this information with prudence and you will be able to make a well-educated decision when buying a new car, truck or SUV.

The number one tip for saving the most money when shopping for a new or used car is to always, “DO YOUR CAR BUYING HOMEWORK FIRST!” For more hints and tips on navigating the new and used car buying process, spend a little time upfront before beginning your car shopping journey by browsing through my 100% free online car buying guide – AutoCheatSheet.com.

As always, I recommend using an online referral service such as Ryde Shopper, Motor Trend or Cars Direct before visiting a car dealership. Their free online price quotes will automatically include any discounts or cash-back incentives currently available in the marketplace.

Tap into these resources, check out their no-cost online price quotes and you will stand that much of better chance of buying your next vehicle for a fair price.

About the author

My name is Carlton Wolf and I have been in the retail and wholesale car business for well over 20 years. I created the Auto Cheat Sheet to better educate buyers on the deceptive sales practices found in many dealerships across the country. Please understand, not all car dealers are dishonest. However, you never know who you will be dealing with.

I’m willing to share my knowledge and experience with anyone willing to listen. Please understand that I am a car guy, not a writer.