Whether you're buying a used car or a new car, one of the first terms you're likely to come across is MSRP. Usually found on window stickers, the MSRP represents the selling price of a vehicle as recommended by its manufacturer. Many new car buyers tend to assume that the MSRP is a vehicle's "official price" – one that isn’t negotiable. However, that is far from the truth.
This short guide breaks down everything you need to know about MSRP for cars, including what it means, how it works, and how you can negotiate for a better deal.
What Is MSRP for Cars?
MSRP is an acronym for the manufacturer's suggested retail price. In this automotive industry, this represents the price that an auto manufacturer recommends a vehicle is worth.
According to the Kelley Blue Book, the MSRP is also referred to as the vehicle's sticker price. That is because, at most dealerships, you'll often find the MSRP alongside other important information on the car's window sticker. This practice dates back to 1958 when Senator Almer Stillwell Monroney sponsored the Automobile Disclosure Act, which mandates car dealers to display key details about vehicles for sale on the cars' windows. This was done to ensure that dealerships sell their cars at a fair price.
However, as its name suggests, a car's MSRP is merely a suggestion and not its actual selling price. In fact, automakers cannot dictate how much their products are to be sold by dealers.
At the end of the day, the final cost of a vehicle will still depend on the buyer's negotiation skills and the lowest price the dealer is willing to take.
What Does MSRP Include?
A vehicle's MSRP will include the following:
- The base price for the vehicle’s trim level.
- The cost of optional features like advanced safety technology, AWD systems, leather seats, engine upgrades, etc. These are usually itemized alongside the MSRP.
- The standard manufacturer's warranty and service coverage.
What Does MSRP NOT Include?
A car's MSRP will NOT include the following:
- The vehicle's invoice price, or the amount the dealer pays the manufacturer for the vehicle.
- The vehicle's destination charge, or the cost of transporting a vehicle from the automotive factory to the car dealership.
- Any extended warranties, accessories, auto dealer incentives or sales promos.
- The taxes and registration fees that car owners will have to pay upon purchasing a new or used vehicle.
- Dealership fees, documentation fees, advertising fees, and other additional charges made by the dealer for preparing the vehicle for purchase.
MSRP, Base Price, Invoice Price, Final Selling Price: What’s The Difference?
When shopping for a new car, you may encounter similar phrases such as MSRP, base price, invoice price, and final selling price. Make sure you don't confuse them, however, as they are all significantly different.
A vehicle’s base price is the cost of the vehicle without the options and add-ons. This means it is the MSRP before any optional accessories, fees, or taxes are even added by the dealership.
Meanwhile, the invoice price, also called the "dealer cost,” is the price of the car from the manufacturer to the dealer. In short, the invoice price represents what the dealership paid the manufacturer for the car.
However, it should be noted that dealers will often be able to pay lower than the invoice price due to discounts like Dealer Holdback and Dealer Cash Incentives.
Lastly, the final selling price represents the total cost of purchasing a vehicle. Also called the "out-the-door price,” the final selling price will include everything from the negotiated price, the sales tax, dealership fees, additional accessories, extended warranties, etc.
How Does MSRP Affect A Vehicle’s Cost?
Most experts argue that MSRP does little to affect vehicle costs and sales. In fact, more and more auto dealers have been found to sell way above the suggested sticker price, sometimes going as far as $10,000 over the MSRP. This is because, as of 2021, the U.S. car industry has turned into a seller's market. With increased demand and decreased production, sellers are taking away discounts and jacking up their prices.
As a car buyer, what can you do? Some car buying guides suggest looking at a car's invoice price instead.
How Low Can You Go? Negotiating The MSRP Of A New Car
As mentioned, buying a car on a budget in 2021 has become a bit of a challenge. Due in part to the COVID-19 pandemic, there has been a worldwide microchip shortage, thus resulting in the slowed production of new cars. In turn, both new and used car prices have gone up.
Other factors that have affected the surge in prices include the return of millions of workers to offices, the receipt of government stimulus packages, increased cash on hand due to the booming housing market, and a shifting attitude towards more expensive vehicles. All of these factors have driven automobile prices up.
So how can you navigate the current market and negotiate pricing terms? Here are five helpful tips:
Research Before Hitting The Lot
Don't just show up to a dealership empty-handed. Instead, narrow down your options to a few prospective vehicles, then research their market values online. Market value changes based on market conditions, incentives, and availability of options, so it's good to be prepared. Otherwise, you could end up making too low of an offer and make dealers feel that you aren't prepared or knowledgeable enough to make a decent deal with.
Negotiate Up, Not Down
When buying from a dealer, most people will tend to negotiate down from the MSRP. However, it is more advisable to find out the car's invoice price then negotiate up from there.
If you don't know where to start looking for vehicle invoice prices, don't worry. There are a lot of online tools and calculators that can help you with that.
Discuss One Thing At A Time
Car salespeople will invariably try to rope you into discussing trade-in and financing terms as you negotiate the sticker price. Don't fall for this trick, as it only works to confuse buyers. Instead, insist on settling on a price before discussing monthly payment options.
Skip The Extras
Dealers will try to get you to pay extra by throwing in all sorts of offers, from extended dealership warranties to fabric protection to anti-theft devices. As long as you don't need any of these offers, resist the temptation to buy them.
Consider A Trade-In
With dealerships struggling to get more cars in their lots, now is the time to consider a trade-in.
According to Edmunds, the average trade-in value for used cars reached "an all-time high" in March 2021, reaching $17,080. It climbed nearly $3,000 from last year's $14,160.
What Are The Highest And Lowest MSRPs?
Outside of market conditions, new vehicle pricing will depend on various factors, including make and model, year, version, trim level, and optional safety features and accessories.
Some of the vehicles with the lowest MSRPs, under $20,000, are subcompact sedans and SUVs. Meanwhile, supercars will be valued at $1 million and over. So naturally, custom-made and special edition cars will be at the topmost part of the list of most expensive vehicles.
Which Cars Are Selling Higher And Lower Than Their MSRPs?
As mentioned, the auto market has been somewhat turbulent in the past few months. While you can still haggle with dealers for a lower-than-MSRP final price on most vehicles, with specific models, dealers just won’t budge.
Often, these are some of the most sought-out cars of the moment. This includes brands with some level of prestige like Mercedes-Benz, Chevrolet, and Jeep. However, there are some upmarket Hondas and Toyotas that are selling for higher than their MSRPs too.
Vehicles That Are Selling Higher Than Their MSRP
Here are five vehicles that are selling for higher than their MSRPs in 2021:
1. Mercedes Benz G-Class: 115.2% of MSRP
Average MSRP: $172,471
Average Transaction Price: $198,688
2. Kia Telluride: 107.65% of MSRP
Average MSRP: $43,407
Average Transaction Price: $46,730
3. Honda Ridgeline: 104.69% of MSRP
Average MSRP: $40,601
Average Transaction Price: $42,516
4. Chevrolet Sonic: $104.14% of MSRP
Average MSRP: $20,945
Average Transaction Price: $21,813
5. Cadillac Escalade: 104.03% of MSRP
Average MSRP: $102,531
Average Transaction Price: $106,665
Vehicles That Are Selling Lower Than Their MSRP
Whereas demand encourages dealers to jack up prices for certain makes and models, a surplus of supply and upgraded redesigns push other vehicles to sell for lower than their MSRP.
Oftentimes, the types of cars you’ll see selling for lower than their sticker price are front-drive SUVs and 2WD trucks – nowadays, more and more people prefer AWD. You can also get good deals on certain luxury sedans these days as more people favour SUVs and bigger cars over sedans and hatchbacks.
Based on Consumer Reports’ dispatch, these are five of the top ten mainstream vehicles that are selling at a significantly lower price than their MSRPs:
1. BMW 7 Series
Price range: $86,800 to $157,800
Discounts on MSRP: 11% off
2. Cadillac XT6
Price range: $48,045 to $57,445
Discounts on MSRP: 10% off
3. Volkswagen Arteon
Price range: $36,995 to $46,995
Discounts on MSRP: 10% off
4. Alfa Romeo Giulia
Price range: $40,350 to $75,250
Discounts on MSRP: 9% off
5. Acura TLX
Price range: $37,500 to $53,100
Discounts on MSRP: 5% off
Now that you know a bit more about the vehicle quote process, you can start your search for your next car with a little more confidence. Hopefully, this guide can help you negotiate a good deal for your next dream car.
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