Get the Lowdown on MSRP and What It Means for You

When you go car shopping, one of the factors you consider is price. It may not be the top factor, but it certainly influences your choices in one way or another. However, pricing for vehicles can be a little confusing. There’s the destination charge, dealer’s price, discounts and specials. But the big price is the MSRP, so it pays to know a little about this magic number and what it means for you.

What is MSRP?

MSRP is an acronym for Manufacturer’s Suggested Retail Price. It literally means the price the manufacturer recommends for the vehicle. Actually, this price isn’t just for vehicles. It can be used for any product, but it is most often seen in higher-end items, especially automobiles. It may be referred to as the list price as well.

You’ll see the MSRP listed on the manufacturer’s website and often in reviews. However, it isn’t necessarily what you will find at the dealership, and there are several reasons why. First off, the MSRP isn’t a requirement for dealerships to use. They have flexibility to institute their own pricing, which may be different than the MSRP.

Why dealerships don’t use MSRP

The MSRP is a standard price for the vehicle it is attached to, but dealerships know their market and what pricing it can handle. Cost of living and local economy are two factors that impact how much people can afford for a vehicle and how much they are willing to pay. A customer in New York or California may have a higher budget for a new car than a buyer in Alabama or Mississippi.

Dealerships calculate their pricing based on what the typical buyer of a model is able to pay. They also consider how much inventory they need to move. For example, as the next model years come in, they will reduce the price on the previous year’s models to make room for the new inventory.

Dealerships are legally required to display the MSRP on a vehicle’s windshield or on a spec sheet for the model. Buyers know the value of the vehicle and can use the MSRP to negotiate a fair price for the model they want.

What goes into the MSRP?

This price includes all costs in manufacturing and selling the vehicle. It also includes a markup to allow the dealerships to make a profit along with the manufacturer. Dealerships pay what is called an invoice price to the manufacturer. It is less than the MSRP to allow for that profitability.

In essence, the MSRP is the price the manufacturer would like for the dealership to get out of the vehicle. It seldom sells at this point though. Yet it gives both the dealership and the customer a point where they can begin their negotiations.

What the customer needs to know about the MSRP

It’s helpful to realize that the MSRP is an inflated price in many cases. You don’t need to settle for paying the sticker price, list price, or MSRP – all of which mean the same thing. Everybody expects that you will negotiate with the dealership, and they have their bottom price point at which they are willing to sell the vehicle.

How do you know what that price is? The way to find out what the best price is for a dealer is to shop around. Talk to different dealerships and let them know you are shopping with others. They want your business, and they want to move the vehicle, so you can expect them to give you a better price.

As you compare the prices, you can let the higher-priced offers know you got a better deal. Then see if they can match or beat it. Once a dealer hits their bottom line, it’s up to you to decide if the price works for you.

Certain times of the year or even of the month will result in more effective negotiations on your part. When the dealer wants to move inventory, they will be more likely to work with you on pricing.

Just know that the MSRP is really just a number you can work with. Never buy a vehicle for more than you’re willing and able to pay, regardless of how good the deal looks on paper.