What Is MSRP?
When you go into a store, you can typically see the prices of products on display. A box of cereal at the grocery store might cost a few dollars, while fresh meat may have a price per pound displayed on its sticker. However, buying a car doesn’t always follow the same process. Although you might see a sticker on the window of a new model that displays its MSRP, or manufacturer’s suggested retail price, that dollar amount isn’t necessarily the exact price you’ll pay.
When buying groceries or goods at a shop, you likely aren’t negotiating the costs of individual items or trying to score a better deal, unless you come armed with coupons. But when you buy a car, various factors go into the price. Understanding what the MSRP means and what to expect can simplify the process of purchasing a vehicle. As the term suggests, the MSRP of a car is a suggested value rather than an actual price.
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Whether you’re preparing to purchase a brand-new model or a used car, it’s helpful to know what flexibility you have in relation to the MSRP and how to get the best possible deal on your next purchase. Use this guide to learn more about the MSRP of a car, what other costs may go into the total price of a vehicle, and what negotiation power you might have as a buyer.
MSRP, Explained
As mentioned, MSRP stands for manufacturer’s suggested retail price. It’s also referred to as the window price or sticker price, as it’s typically displayed somewhere on the vehicle. Automotive manufacturers set the MSRP of a vehicle to generate profits for themselves and the dealerships that sell their models.
The profit margin on a new car depends on a few factors. It plays a role in how much room a buyer has for negotiation. Many buyers view the MSRP as only a suggestion about what the car may be worth.
What’s Included
The manufacturer’s suggested retail price of a vehicle includes the base cost for the specific trim level, along with any extras that it’s already equipped with when it arrives at the dealership. You can look at an itemized list of the features and options it includes, as well as those that may be available but not included on that particular model. The MSRP also includes the factory warranty coverage the manufacturer offers, along with the destination charge, or the cost assessed to transport the vehicle from the manufacturer’s plant to the dealership.
What’s Not Included
The MSRP doesn’t include any additional features or equipment you choose to add after purchasing the vehicle, such as aftermarket accessories. It also excludes extended service programs offered by the dealership. If your purchase qualifies for any incentives or deals, those aren’t reflected in the sticker price either.
When you buy a new or pre-owned vehicle, you typically have to pay taxes and fees. These costs aren’t included in the MSRP and would be added to the deal separately.
Base Price vs. MSRP
Another frequently used term in the automotive industry is base price, which refers to the cost of a vehicle that has no upgrades or optional features. Manufacturers create base models, which are the lowest trim levels of a particular make and model, and charge the base price for them. Looking at the base price when shopping for a car can cause confusion, as you might think the vehicle costs one amount when the price will actually come in much higher on models with more features.
Invoice Price vs. MSRP
You may hear automotive professionals referring to the invoice price, which differs from the MSRP. The invoice price is the amount charged to a dealership by a manufacturer. Not all car dealers offer invoice prices to buyers, but you may be able to request to see an invoice price when shopping for a car. The invoice price is not the same as the MSRP or sticker price.
Negotiating Based on MSRP
The MSRP of a car is simply its suggested price, so it’s not a hard and fast cost. Buyers can always make their own suggestions when negotiating the cost of a new car. However, various factors impact the success rates of negotiations.
Starting MSRP
Generally, a higher-cost new car has more room for negotiation, as the dealership may be able to bring the price down without taking a loss. If you’re looking at a more expensive new car, you might be able to negotiate more effectively.
Number of Similar Vehicles
Before you start negotiating, look at the dealership lot to see how many similar vehicles are there. If you spot many similar models, your negotiation power is probably greater due to a surplus. However, if the car you want to buy is the only one of its kind, you could end up paying a higher price due to high demand.
Economic Conditions
The economy plays a role in whether car dealerships are willing to negotiate and bring prices down. In a recession, new cars are often seen as luxury purchases, resulting in a decline in sales. Dealers may be eager to make sales, resulting in lower prices.
By contrast, if a dealership is struggling to stay afloat in an economic downturn, its sales team might have to charge higher prices to avoid taking losses. The economy also affects the demand for cars. When they’re in high demand, prices are higher.
Tips for Negotiation
Negotiating the price of a car can feel overwhelming, but following a few tips can improve your chances of success.
Focus on the Total Cost
Instead of looking at the monthly payment amount for a specific vehicle price, focus on the total cost in your negotiations. Financing professionals can adjust the terms of a loan to get a lower payment, such as increasing the term length, but you could end up paying more than you want to spend on the car.
Look at the Larger Picture
It’s also important to look at the big picture, as several hundred dollars won’t make a significant impact on your payment each month. If you’re close to what you want to pay, it’s best to avoid letting a small amount stand in your way. Car component shortages and increased demand have led to sharp increases in car prices, so you may not be able to haggle your way down to an incredible deal.
Using the MSRP as a suggested starting point is helpful as you shop for a new or pre-owned model. However, you don’t have to look at this number as a fixed price as you would look at the price of goods in a store. You could end up paying more than the MSRP, or you might get a good deal that allows you to pay a little less than the amount listed on the car’s sticker.
Finance & Insurance Editor
Elizabeth Rivelli is a freelance writer with more than three years of experience covering personal finance and insurance. She has extensive knowledge of various insurance lines, including car insurance and property insurance. Her byline has appeared in dozens of online finance publications, like The Balance, Investopedia, Reviews.com, Forbes, and Bankrate.
