What is the meaning of MSRP? Simply, MSRP stands for “manufacturer’s suggested retail price.” In the automotive world, it’s the price that a manufacturer recommends dealers charge for the vehicle, including any optional equipment.
If you’ve spent any time car shopping, you’ve likely come across the acronym: MSRP. It’s often found on new vehicle advertisement listings or general vehicle information websites such as Edmunds. Car buying has a language of its own, and MSRP is one of many terms you’ll encounter at a dealership or when shopping online.
To get the best deal, you’ll want to understand what the “suggested” price means to your bottom line when buying your next car. The key word “suggested” is used because the automaker can set what it believes is a fair price for a vehicle, but its dealers aren’t typically bound to follow it.
Why is MSRP important?
Fundamentally, MSRP is a consumer protection. Manufacturers and dealers are required by federal law to post a vehicle’s price in the window — literally, the “window sticker” — which includes the price of the car, the price of any extra features and options, and assorted fees. A suggested price from the manufacturer helps keep pricing consistent across dealers and gives buyers assurance that they’re paying roughly the same as anyone else. Depending on demand for the car, however, the actual price can vary wildly from the MSRP (as we’ll see below).
Is MSRP the final price of the car?
MSRP is just one piece of the final price. Various fees such as destination fee (the cost to transport the car from factory to dealer lot, and passed on to the buyer), sales tax, registration, and interest charges are an unfortunate reality that make that initial MSRP — so enticing in advertisements — a bit more of a shock when the final numbers are tallied. This makes it even more crucial to understand a car’s invoice price as a basis for your negotiations.
Is MSRP the same as invoice price?
No. Broadly, a car’s invoice price is the price that the dealer pays to buy it from the manufacturer. Less than MSRP, the invoice price builds in headroom for the dealer and various middle parties to make a profit. As a buyer, knowing invoice price is helpful since it gives you an idea of a dealer’s bottom line. Dealers are a business, after all, but knowing what the dealer already paid and where they reasonably want to make a profit can inform your negotiations.
Sometimes you can negotiate to buy a car at invoice price or even lower. Manufacturers often offer cash to dealers to stimulate sales and offset any losses from a lower-priced sale. If a car has been sitting on a lot for too long, a dealer might be motivated to sell for the invoice price simply to make room for new inventory. Each dealer’s overhead and assorted costs, and sales goals, are also different, giving some more latitude than others to make deals.
A host of variables often go into the final purchase price, and while buyers don’t need to venture into the weeds of dealership operations, it helps to know what the salesperson across the table, or on the other side of the computer, is up against in any transaction.
Is MSRP negotiable?
It depends. It’s all about the demand for the vehicle. While the invoice price isn’t typically negotiable, the extra margin built into the MSRP can be. On slow sellers, dealers may be more inclined to negotiate big discounts. For popular, steady sellers, you might be lucky to get a few hundred dollars off. And some dealers may simply hold the line on MSRP, knowing that a popular model won’t sit for long. In the case of new or redesigned models, or special editions, there’s often little or no room to negotiate.
These cars give dealers an opportunity to make extra profit. And while it may seem outrageous or even unethical for dealers to mark up (a “market adjustment” in dealer parlance) a vehicle by several thousand dollars, there’s usually always a waiting buyer.
That said, you may have room to negotiate a better deal, even on a new or popular model. Some dealers intentionally aim high with a markup, offering room to negotiate. As a buyer, it never hurts to start low and trade a few offers until you find a dealer’s threshold.
Why do dealers charge more than MSRP?
Because they can. Ethics aside, there’s nothing illegal about it, despite the consumer protection intent of publishing the MSRP. Here it comes down to simple supply-and-demand dynamics. It pays to cast a wide net when searching for a new car, especially one in high demand. Again, every dealership has its own unique business needs, and a dealer in the next county, perhaps through local or regional incentives, may have a better deal on the car you want.
Should I pay more than MSRP?
It all depends on how badly you want the car. For popular high-volume cars, it’s usually not necessary. There are plenty of deals and regular incentive programs on these perennial favorites. For new models or special editions, it may be unavoidable. But there are a couple of ways around paying MSRP for a hot new model. One strategy is to get in early. When an anticipated new model is ready for release, call a dealer and place an order before the car arrives on the lot. (You may need to watch the automotive media to learn when new models are shipping.) You may need to pay a deposit, which is normal. Just make sure to get the selling price in writing and be clear on refund policies. Another way is to simply shop around and find dealers that don’t include market adjustments. Some don’t, but it may require searching around, even to dealers out of state.
Does every new car have an MSRP?
No. There are a few brands that don’t use dealers. Instead, they sell their vehicles directly to the consumer. Tesla is the most well-known example. In this case, the price that the automaker advertises is what you’ll pay. There’s no MSRP to negotiate on. However, you’ll still likely need to pay the additional destination fee plus other fees or taxes.
Edmunds says
Unlike many consumer goods with a suggested retail price — appliances, electronics, furniture — automobiles have a more dynamic relationship to MSRP. There’s often plenty of wiggle room built into a car’s suggested published price. Think of MSRP as a conversation starter and see where the conversation takes you.