An Inside Look at What MSRP Really Means
Look at the MSRP stickers on the windows of vehicles for sale, and you will find the price 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 for which the vehicle sells. Below, I explain MSRP, how manufacturers calculate it, and whether paying full MSRP for a car, truck, or SUV makes sense.
Table of Contents
- MSRP definition
- How is it determined?
- What is not-included within MSRP?
- Where can MSRP be found on a vehicle?
- Should you pay the manufacturer’s suggested retail price?
- What’s the difference between sticker price and invoice price?
- How much below should you pay?
- Can a dealer sell a car for higher than MSRP?
- Use your knowledge to your advantage
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 a nutshell, the MSRP is the suggested retail price the vehicle manufacturer recommends to the dealer.
If the vehicle you are considering does not have an MSRP listed on the window sticker or information sheet, do not hesitate to ask one of the dealership’s sales professionals 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 sticker on the vehicle. Do not mistake the addendum sticker price for the actual manufacturer’s suggested retail price of the car.
How is MSRP Determined?
Though few people outside of the auto industry know it, federal law mandates dealerships to 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 car dealerships display the manufacturer’s suggested retail price for the brand and model’s lowest trim. Upgrades, such as luxurious trim, interior niceties, high-tech bells and whistles, and other add-ons, are listed separately.
It is 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 clarify further what this acronym means and why it is so crucial in car sales. Consider a situation where you are car shopping and find a gorgeous new luxury sedan with an 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 you are paying more than you should for the car. Though there is no assurance that the dealership would reduce the sale price to the MSRP of $50,000, it is in your best interests to try to negotiate the vehicle’s sale price to the listed MSRP or even lower if feasible. Supply and demand drive how much you will pay to buy a car from a dealership.
Need to know car buying tips
- The cost of a new car from a dealer and the factory invoice price is different. The dealer’s cost is less than the invoice price.
- Knowing the dealer’s costs puts you on a level playing field when negotiating the best price with the dealer.
- Always negotiate up from the dealer’s cost, 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.
- Please 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 may not include additional costs the buyer must 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 car from the factory to the dealership lot. This charge is non-negotiable.
There may be several additional dealership fees not included in the MSRP. A few 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 pinstriping. Nor does the MSRP account for vehicle-added options installed by the dealer.
Where can You Find the MSRP Sticker on a Vehicle?
MSRPs are 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 any new vehicle for sale is clearly displayed.
However, it is essential 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?
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. The MSRP is a beginning point for the dealership to start negotiations.
However, dealers have the right to ask more or even less than the MSRP posted on the window. Due to limited demand, a car sitting on the lot for a long time may sell for less than MSRP or even dealer cost.
Alternatively, a vehicle in considerable demand might sell for significantly more than the posted MSRP. Dealers 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.
The Difference Between MSRP, Factory Invoice Price and Dealer Cost
MSRP is not the same as the dealer invoice price. The invoice price is the dollar figure the dealership pays the manufacturer for the automobile on paper. For example, a vehicle with a $25,000 MSRP will likely have a dealer invoice price of around $23,000. The auto dealer paid $2,000 less than the MSRP to acquire the vehicle.
The more costly features added to the vehicle, the more significant the difference between the dealer’s invoice price and the price at which the car can be sold. And just so you know, a dealer invoice is not the absolute bottom dollar a dealer pays for a new vehicle from the manufacturer. There may be rebates and incentives subtracted from the car’s invoice price.
The formula for figuring a dealer’s actual new car dealer cost is:
Dealer invoice price – dealer holdback – rebates and incentives (if available) = real dealer new car cost.
How Much Below MSRP is a Good Deal?
For most 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. Many of those who work in the auto industry insist that buying a car 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 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 the factory invoice. If vehicle supply is low and demand is high, purchasing 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 Car 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 potentially elevate the sale price 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 will allow an unscrupulous dealer to take advantage of you.
The bottom line is auto dealership owners, and sales professionals are in business to make money. This is 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 higher than the posted MSRP as they have comparably high-profit margins.
Suppose the vehicle is comparably small and less expensive. In that case, the dealership’s profit margin is likely to be narrower, meaning there is little 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 car 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.
Assume the automobiles were bought in lesser quantities through a distributor. In that case, 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 a couple of times and refer to it as you shop for your new automobile. Use this information with prudence, and you can 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.
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 a much better chance of buying your next vehicle for a fair price.
Shopping for a new car?
Before visiting a dealership to buy a new car, it’s essential to know the dealer invoice price and what other people are paying for the vehicle in your local area. Otherwise, you won’t know a reasonable price to pay for any car you’re looking to buy.
Learn how to have dealers compete with each other online before ever stepping foot inside a dealership to guarantee you pay the best new car price and avoid any modern-day car dealer scams.
I highly recommend using an online referral service such as Ryde Shopper or Motor Trend. Their quotes will automatically include any discounts or cash-back incentives currently available in the marketplace.