When you’re shopping for a new car, it’s important to understand the definition of MSRP. MSRP is an acronym that stands for Manufacturers Suggested Retail Price. MSRP is also known as the car’s Sticker Price. Every new car has an MSRP. It’s the price that the auto manufacturer recommends the car dealer charge for the vehicle. The MSRP of any car, truck or SUV is available online at car-shopping sites like AutoGravity. Although the auto manufacturer, including brands such as VW, Nissan and Infiniti, suggests a specific selling price to the dealer, new-car dealers are independent businesses. These retailers have already bought the vehicle from the manufacturer for their inventory, so they have the ability to price and sell the car for any amount they want. This is why it’s important to negotiate the price. Most cars and trucks sell for less than MSRP. With this article, we will help you better understand what MSRP means; how it can change based on trims; how much lower you can expect to negotiate; and how to understand if “you’re getting a deal” or not. We’ll also help shoppers understand lease terms and technicalities before they buy and we’ll answer these six important questions:
MSRP and the definitions of many other pricing terms that car shoppers encounter, like Invoice Price and Base Price, can be confusing. And the Manufacturer Suggested Retail Price is different on every single vehicle in a dealer’s inventory depending on its trim level and options. This has been a problem for Chris, a teacher in Southern California. “I know I want a new SUV, and I’ve been doing my research online on sites like AutoGravity.com and kbb.com,” he told us. “I really want a new Jeep Wrangler, but I’ve also been looking at the Toyota 4Runner and the Ford Raptor pickup.” Like most new car shoppers, Chris has read all the articles. He knows the market, but he’s still unsure what to pay for his new car. “There’s so many prices to navigate,” he said. “How do I know if I’m getting a good deal or not?”
What’s the Definition of MSRP?
MSRP is an acronym that stands for Manufacturers Suggested Retail Price. It’s also known as the car’s List Price or Sticker Price, because it appears on every new car’s window sticker or Monroney along with its fuel economy and a list of its standard and optional equipment. MSRP is simply the price the car’s manufacturer suggests the car dealer should charge for the vehicle. New car dealers, however, can price and sell the cars for any amount they want, and the transaction price of most new cars is well below MSRP. This is usually after some smart negotiation from the consumer, but many dealers will offer cars below MSRP prior to any haggling with the shopper. Many hot new models are sold at MSRP, because demand is high for those vehicles and dealers know some buyers will willingly pay extra to get their hands on one. But usually this demand cools off after a few months and deals can be negotiated on the same model a few months later. Although it’s extremely unusual, occasionally there are special limited-edition versions of a vehicle that dealers will try to sell for an amount higher than the MSRP. This is because the manufacturer has said it will build only a small number of the hot new model despite the fact that it’s in high demand. This is fairly common in the auto industry and creates even more demand in the market for certain models. Recently the 2018 Dodge Demon muscle car and the Ford GT supercar were famously sold for over MSRP. Shoppers should also remember that used cars or certified used cars do not have an MSRP.
What is a Car’s Base Price ?
Base Price is the Manufacturers Suggested Retail Price or MSRP of the vehicle before the addition of higher trim levels or optional equipment. It’s basically the least expensive and the most basically equipped version of the vehicle offered by the manufacturer. Every brand of car, truck or SUV, from Hyundai to Ferrari have a base price. There are a two other important pricing terms new car shoppers should know and understand:
- Invoice Price: Invoice Price is sometimes referred to as dealer cost. This is what the dealer paid the manufacturer for a car, and the invoice price of any new car is available online. However, with manufacturer rebates and incentives the invoice prices usually not the dealer’s final cost. It may be lower. All dealers make their profit by selling the car to you for more than the invoice price, but many dealers will sell cars for less than the invoice price if you’re a shrewd negotiator or buying your dream car at just the right time.
- Transaction Price: This is the total negotiated selling price of a new car, including any manufacturer rebates, destination fee and other charges, like a gas guzzler tax. Sales tax, however, is not included. This is what you’ve agreed to pay for the vehicle.
How does Trim Affect MSRP?
Every new car is available in multiple trim levels. Each adds equipment to the vehicle, ranging from interior features to larger engines, and they usually add hundreds or even thousands of dollars to a car’s MSRP. For example, the popular seven passenger 2019 Mazda CX-9 is offered in four trim levels; Sport, Touring, Grand Touring and Signature. The base price for the CX-9 Sport is $32,280. That’s the SUV’s base price. But stepping up to the CX-9 Touring adds a long list of additional luxuries, including automatic headlights, heated side mirrors, a power liftgate, leather-trimmed upholstery, keyless entry and a larger infotainment screen. It also drives the price up by about $3,000. The base price of the CX-9 Touring is over $35,000. The CX-9 Grand Touring and Signature add even more luxuries and expense, with the CX-9 Signature priced over $45,000. Although Mazda uses names to identify its trim levels, many manufacturers use letters. For instance the trim levels on the Honda Civic include LX, EX and Si.
Is MSRP the Best Price I Can Get?
In the vast majority of new car sales, MSRP is not the best price you can get. Dealers expect buyers to negotiate the price lower, so shoppers should haggle and offer less if they want a lower price. Usually the margin between invoice price and MSRP is thousands of dollars, so the dealer has room to negotiate and still make a profit. Most of the time the transaction price falls between the invoice price and MSRP, however, under certain circumstances many dealers will sell a car for below invoice price. Often it’s best to begin negotiations by offering the dealer an amount below invoice price, which is easily accessed online. Any counter offer by the dealer will usually be between the invoice price and the Manufacturers Suggested Retail Price. If the car, truck or SUV for which you’ve been shopping is available at more than one dealer, you can benefit from negotiating with multiple dealers simultaneously, having them compete for your business.
Is MSRP Important for a Lease?
The MSRP of a new car, truck or SUV is very important when leasing a vehicle as it affects the monthly payments of the lease. When leasing, you should always negotiate the Manufacturers Suggested Retail Price of the vehicle just as if you were buying the vehicle. A lower MSRP means a lower monthly lease payment. When leasing, you can also negotiate the amount of the down payment, which will affect the monthly lease payment. If you offer the dealer more money up front, the monthly payment will be lower. Just be sure to always calculate the total cost of the lease. If it’s a 36-month lease, with no down payment and a monthly payment of $500, the lease will cost a total of $18,000. If that’s acceptable to you, but you’re hoping to spend $400 a month, you can get there by paying $3600 upfront and financing the rest. However, there are certain aspects of a new-car lease that cannot be negotiated, including the vehicle’s residual value, the dealers acquisition fee, registration fee and tax.
What’s a Fair Purchase Price?
A fair purchase price for a new car purchase is when the buyer happily drives a new car home, feeling like he or she got a good deal, and the dealer has made some profit. A fair purchase price is not necessarily the absolute lowest price. Of course a lower price is always desired, but it is possible to pay more than you initially expected and still end up with a fair purchase price. Many online automotive consumer sites, including AutoGravity and Kelly Blue Book (KBB), offer calculators that will not only supply you with the vehicle’s MSRP and invoice price, but also a “fair price” to pay in your area. Usually that fair price is significantly below MSRP.
How Do I Know if the Price is Right?
Knowing if the price is right on a new car begins with knowing what other car buyers have paid for a similar vehicle in your area. This is easily accomplished by logging onto automotive consumer websites like AutoGravity and Kelly Blue Book (KBB). Their new-car pricing tools will give you a range of prices recently paid for a similar vehicle in or near your zip code. This range of prices is not calculated by MSRP, but by actual recent transactions. If your negotiated deal falls within that pricing range, it’s probably the right price. However, if it’s at the top of the range, you may be able to use those numbers to your advantage and negotiate the deal closer to the bottom of the pricing range. Remember, the dealer has the same data that you do, so always do your research and bring that data with you. It will not only help you get the best deal, but you’ll know when the price is right. In most cases, that price will be well below MSRP, and it’s important to understand the definition of MSRP. Any educated consumer knows the MSRP meaning and that the Manufacturers Suggested Retail Price is just a starting point for negotiations. Also, know all the costs involved as well as what other consumers are paying. That’s how you get the car you want at the right price.