Interested in buying the car of your dreams but don’t want to overpay it?
Although finding cheaper cars can sometimes be quite challenging, knowing the MSRP can help you make an informed decision when buying a new car. It creates room for negotiating the final price and seizing the best deal.
But what is MSRP? Let’s find out.
What Is MSRP?
When buying a new car, you will often see a little sticker on the car window with a price tag different from the selling price. This price is called MSRP—the manufacturer’s suggested retail price. MSRP is the amount that the manufacturer suggests to the car dealer as the selling price. Of course, this is only a jumping-off point of what the actual selling price will be.
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What Does It Mean?
The MSRP is the price of a particular car model, without any optional features and add-ons. Car dealers also typically add extra expenses, so the overall price could be higher than the original MSRP. Of course, this should be somewhat within the range of the MSRP.
In other words, MSRP is merely what the manufacturer considers a fair price after summarizing the manufacturing expenses. From then on, it’s up to the car dealers to decide the final retail price. The MSRP is also a starting point for negotiating the final bill.
Why Is It Important?
The meaning of the suggested retail price is setting a standardization of selling prices across retailers. The purpose is for all parties involved in the deal to have a fair profit and a decent final sale.
Another aspect of the MSRP is that the buyer can see the suggested price and calculate if the final price is attainable or if they should start negotiating around it. At the end of the day, everyone wants to buy a car at a reasonable price while getting as many commodities as the model offers.
What Does It Include?
MSRP must be fully disclosed in Canada. The car dealers are required to list all details included in it so the buyer knows the real purchase price.
That said, the MSRP includes basic car features, a standard factory warranty, and service coverage.
If you want to see what exactly is included in the MSRP, be sure to check out the manufacturer’s website for all the details.
Besides the included costs we’ve already mentioned, some expenses do not fall in the MSRP. It’s up to the dealers to decide what those extra charges are, but they’ll definitely pump up the final price. Here are some of those:
- Destination fee,
- Invoice price,
- Registration fees,
- Upgrade costs,
- Sales price, and
- Payment price—this is applicable in case you have taken out a loan to purchase the car. You’re required to pay a certain amount per a loan agreement.
The elements above are not included in the MSRP and are extra costs you’re supposed to pay after your purchase.
How Does It Affect the Cost of the Car?
Depending on the model and its demand on the market, a manufacturer will suggest a sale price deemed fair not only for the buyers and the car dealers but for all involved in the manufacturing.
The suggested retail price is the starting point for the final selling price. Then the car dealer decides on any additional costs that will be charged, which naturally increases the car’s overall cost. Of course, a dealer can also set a price lower than the MSRP, but this is usually if the car’s demand has dropped significantly.
A standardized MSRP for a particular car model prevents car dealers from taking unreasonable advantage of the manufacturer’s price and the selling price in order to profit. This way, buyers can expect somewhat more realistic prices and be able to bargain on the outcome.
The higher the MSRP, the higher the final price can be and vice versa.
Other Terms Referring to MSRP
MSRP is often referred to as a “window price” or a “sticker price.”
The first alias is fairly obvious, as the MSRP is typically displayed on the car window.
The “sticker price” comes from the paper sheet containing all the information about the MSRP that is stuck on the said window.
You may also encounter other terms such as list price or base price. But all of these names represent the same—the manufacturer’s suggested retail price.
How to Determine the MSRP?
The MSRP is based on several factors:
- Supplies costs,
- Labour costs,
- Overhead costs,
- Transportation costs, and
- Retail markup.
The suggested retail price for a specific car model is the same for all retailers, regardless if dealers decide to stick to the MSRP or adjust the final price.
Are MSRPs Negotiable?
Absolutely. We have already briefly mentioned that the MSRP price is only the starting point for the final price, thus, it’s susceptible to negotiations. Of course, several factors may come into play when negotiating the price. It largely depends on the demand of the specific model you’re interested in—highly popular ones tend to cost more than those sitting in the car saloon for a longer period.
Another factor influencing the negotiations is the invoice price that car dealers pay when purchasing a specific car model. If they paid a high invoice price, it’s more likely that they would want to stick as closely as possible to the selling price—thus, leaving little room for bargaining on the price.
But even if that’s the case, you should always try to negotiate, as car dealers are often willing to lower the price by a percentage acceptable to both parties.
Another factor to consider is that some manufacturers offer rebates to car dealers if they lower the price for less requested models.
How Much Below the MSRP Can You Pay?
It’s important to know the market and check the current price spread for your desired car model. This will set the ground for your negotiations. Usually, most deals can be sealed at a price between the MSRP and the invoice price.
Also, if you want to get a deal lower than the MSRP, another important consideration is the profit margin of the car. Interestingly, luxury cars usually have higher profit margins, which leaves more room for negotiation.
A discount of 10% below the MSRP is a relatively decent deal if you can’t find a better one elsewhere. In some cases, you’ll be able to get even a 20% off MRSP, but in most cases, if the vehicle is in high demand, you’ll be able to get the usual 3-5% off.
Tips on Finding the Best Deal
Before you start negotiating the price, it’s good to have some strategies to increase the chances of sealing a good deal.
Don’t be the first to suggest a price when you start talking about a possible discount—ask the dealer for their best offer, and only then can you try to counteroffer. This is smart because sometimes dealers already set a discount on the MSRP for that car.
Another pro tip is to research the market price for your desired car before even entering the car saloon. Also, ask to see the invoice price of the car and see if there are any available rebates. It will save you time in negotiating and save you more money.
A key factor to knowing how much below the MSRP price you can go is requesting quotes from several dealers on the same car. This will give you an objective price to aim for in negotiations.
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MSRP vs. Invoice Price
Now that we know the meaning of MSRP, keep in mind that the suggested retail price is just that—a suggestion. The manufacturer asks the dealer to sell the car at the suggested price, and it’s up to the dealer to accept it or not.
Invoice price, on the other hand, is the cost that the dealership pays to the manufacturer for the car; before the car is transported to the saloon, the dealer must purchase it from the manufacturer. Car dealers are paying the price according to the car model and the manufacturing costs.
Here’s an example:
Suppose a car dealer has paid $24,000 for a car to the manufacturer. That is the invoice price. The manufacturer then suggests that the selling price is $27,000, which is the MSRP price.
The difference between MSRP and invoice price is the profit margin for the car dealer.
This margin significantly influences much lower is the car dealer willing to go on their first offer to you.
Highest vs Lowest MSRP
Unlike in the past, today’s difference between the high and low ends of car pricing is much higher. Luckily, there are still decent models that can provide the needed comfort at a reasonable price.
The MSRP price directly depends on the car model. The fancier the model, the higher the costs are during the manufacturing process. This results in higher MSRPs because the manufacturer must cover the supply of materials and labour.
While you can find new cars well below $20,000, there is also the other extreme. Some vehicles can reach a staggering price of $1,000,000 or more. But there is still a good variety of options between both ends.
Understanding the MSRP can help you set the budget for a new car. It’s an orientation point you can use when negotiating the final price of the vehicle. Remember, car dealers are not obligated to stick to the original MSRP; they can go lower or higher than the suggested retail price.
The carmaker suggests the retail price of their vehicle to the car dealer. This suggested retail price is called MSRP.
MSRP is an acronym for the manufacturer’s suggested retail price and is a recommendation of what the car should cost.
The MSRP is based on the supplies, manufacturing, and labour costs, as well as retail markup.