New Car Market: What Is MSRP and What Does It Mean for Car Buyers?
Written by
Chris Ozarowski
Edited by
Elizabeth Constantineau
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When you’re buying a new car for the first time, the plethora of industry-specific terms can be confusing. One such term is the manufacturer’s suggested retail price, or MSRP for short. But what is MSRP? Keep reading to learn more about how it affects the car buying process, and how you, as a buyer, can leverage this information to get the best price possible.
What Is MSRP?
The MSRP, sometimes referred to as the “list price” or “sticker price,” is the price that the car manufacturer recommends dealerships use as a starting point when selling. It is based on the costs associated with manufacturing the car, such as labor and materials.
MSRP isn’t necessarily what you’ll pay for the vehicle — in most cases, there’s room for negotiation. The purpose of MSRP is to ensure pricing consistency by providing a standard price across all dealerships for a specific make and model.
Should You Buy a Car at MSRP?
Whether or not you should buy a car at MSRP depends on the specific circumstances. If the car is in high demand or a limited edition, buying at MSRP may be the best deal you can get. However, for many vehicles, there may be room to negotiate the price down from the MSRP.
It’s always a good idea to do research on the car’s market value and be prepared to negotiate the price to ensure you’re getting the best deal.
How Dealerships Determine Sale Price
When you start to compare the MSRP with the sale price, you’ll find that the two figures can be quite different. The sale price is the final amount you agree to pay for the vehicle after negotiations with the dealership.
Dealerships use the MSRP as a benchmark to set their pricing. However, they’re not obligated to follow the MSRP strictly. They can choose to sell the vehicle for more or less based on an analysis of many contributing factors, such as the popularity of the model, the dealership’s location, inventory size and sales targets.
Remember that the MSRP doesn’t include sales tax, license fees or dealership fees. These will add to the final cost of the vehicle.
How To Negotiate Before Buying
When buying a car at a dealership, you should be able to negotiate the price and added features to get yourself a better deal. However, to negotiate well, you need to do your research.
Before entering into any negotiations, it’s important to arm yourself with as much information as possible, such as:
- Invoice price: The invoice price of the car is what dealerships pay the manufacturer for the vehicle. The difference between the invoice price and the MSRP gives you an idea of the potential room for negotiation.
- Average sale price: Research the average sale price of the car in your area. This can be done by using various online resources or by speaking to local dealerships to gauge the typical going rate. This gives you a benchmark for negotiation and helps you identify a fair price.
- Other items to negotiate: Remember that the purchase price of the car is not the only aspect up for negotiation. Other factors, such as financing, warranties and the trade-in value of your old car, can also be negotiated.
Once you’re armed with information, remember to be patient and be prepared to walk away if the dealer isn’t willing to meet your price.
Takeaways
The MSRP is a suggested price, not the final one. Do some research and take the time to negotiate — you could potentially secure a lower price for your new car. Remember, an informed buyer is an empowered buyer.
FAQ
Here are the answers to some of the most frequently asked questions regarding MSRP.- Is the MSRP the price you pay?
- MSRP is not necessarily the price you will end up paying for a car. It is a suggested price set by the manufacturer, and it is typically used as a starting point for price negotiations at the dealership. Depending on factors such as the model's popularity, inventory size, dealership location and sales goals, the final price you pay may be lower or higher than the MSRP.
- What is MSRP vs. sale price?
- The MSRP is the price recommended by the manufacturer. It's often used as a starting point for price negotiations and is typically the same across all dealerships for a specific model.
- The sale price, on the other hand, is the final price a buyer agrees to pay after negotiations. This price can be influenced by factors like dealership promotions, customer incentives and market conditions, and may end up being lower or occasionally higher than the MSRP.
- What does it mean to buy at MSRP?
- Buying a car at MSRP means purchasing the vehicle at the manufacturer's suggested retail price, without any discounts or negotiations. Dealerships don't always sell cars at MSRP, setting prices higher or lower based on market conditions and their own costs.
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- Federal Trade Commission. "Manufacturer-imposed Requirements."
- Autotrader. 2022. "Car Invoice Price and Dealer Markup: Tips for Buying a Vehicle."
