What Is MSRP?

Manufacturer’s Suggested Retail Price for New-Car Buying

Car salespeople toss around phrases such as “MSRP,” “dealer invoice” and “sticker price” all the time. But do you really understand what they mean? Car buying has a language of its own, and you need to understand the nuances of these pricing terms if you want to get the best deal.

What does the MSRP price mean?

MSRP stands for the manufacturer’s suggested retail price. As the name implies, it is the price that the manufacturer sets and recommends that a dealership charge for its vehicles. MSRP is often cited in many advertisements and vehicle reviews.

What is the “sticker price” on a car?

The MSRP of a new car lives on a window sticker, formally called a “Monroney label.” As such, people often use the terms “sticker price” and MSRP interchangeably

Is MSRP the final price?

Not usually. While the dealership would love it if MSRP was the final price, in most cases it is actually the starting point for negotiations. That said, if the vehicle is in high demand — think of a brand-new model or redesign — it is not uncommon for the MSRP to be the final price.

Can a retailer charge more than MSRP

Yes. As the MSRP acronym spells out, the figure is the “suggested” price, not the maximum price. Let’s say there’s a highly anticipated model coming out and the initial inventory will be limited. Some dealerships will use this as an opportunity to make an extra profit and add a “market adjustment” that raises the selling price of the vehicle. More commonly, you may come across a vehicle on the lot that has a number of dealer-installed options, such as wheel locks, all-weather floor mats and a cargo net. These items are bundled together and will raise the price of the vehicle. You’ll find these extra dealer options itemized on a document, adjacent to the window sticker called an “addendum” or “supplemental window sticker.”

What is the Invoice Price?

Manufacturers ship vehicles with invoices, which are the bills from the manufacturer to the dealer for each vehicle. Since the dealership will have to pay that amount for the vehicle, generally anything over that will be a profit. An actual invoice is a difficult form for consumers to read since it is filled with numbers and abbreviated terms that only automotive insiders understand. But it does have valuable information since it lists not only what the dealer paid but also additional fees the dealer might have paid, such as for advertising and other regional costs. In recent years, some dealerships have become more open to showing customers the invoice. It’s best to ask politely to see the invoice price rather than demanding it as if it is your right.

What is Market Value Price?

The market value of a vehicle is the average amount that other buyers in your area are paying for the vehicle. Edmunds calls this the “True Market Value” (TMV) or “Edmunds suggested price.” The Edmunds suggested price is what we recommend you pay, not including taxes or fees. It is based on our analysis of millions of data points including supply, demand, incentives, options, and recent nearby transactions.

The market value will usually lie in between the invoice price on the low end and sticker price on the high end. Because the market value is an average, some people will pay less and others will pay more. But by looking at the TMV or the suggested price, you can get a rough idea of how popular the vehicle is and what you should expect to pay for it.

What is the Blue Book Price?

Kelley Blue Book is one of many resources that dealerships use to evaluate the pricing on a trade-in or used car. The value of a vehicle from its data is called the “Blue Book price” or “Blue Book value.” Like Edmunds, Kelley lists its own used-car values, using its own proprietary methods. Dealers will also consult NADA Guides or the “Black Book,” which are less consumer-facing and are designed to help them determine wholesale prices.

How much off the MSRP can I negotiate?

This depends on the market value of the vehicle. You can expect to see larger discounts on slower-selling vehicles. But on a popular vehicle, even a couple hundred off might be considered a good discount. Depending on the popularity of the vehicle, you can sometimes negotiate to buy a car at the invoice price. Occasionally, you can pay below invoice for a vehicle if there are incentives such as customer cash rebates or dealer cash. Dealer cash is unadvertised money the manufacturer pays the dealership to help it sell cars.

The dealer would like you to negotiate using the MSRP as the starting point. But the pro move is to use the dealer’s asking price as the starting point. In most cases, you’ll find that the dealership has already discounted the vehicle from MSRP. Use the market value as your price target in the negotiations. If you can beat it, great! If you’re at the market value or slightly above, at least you’re in the ballpark for what others have paid

Become the Pricing Expert in Your Area

The market is always changing, and prices fluctuate rapidly. So it’s important to shop around for the best deal. The car pricing terms here will guide you as you get quotes and consider various offers. As you shop, you will become an expert on car pricing in your area during the period of time you’re shopping for your car. And when you know the numbers behind the deal, it will make you a better negotiator.

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