- What MSRP Means
- How Does MSRP Affect the Cost of the Car?
- What is the Difference Between the Base Price and the MSRP?
- What is the Invoice Price?
- How Much Lower Than MSRP Can I Negotiate for a New Car?
- When You’re Ready to Buy, Keep These Negotiating Tips in Mind:
What MSRP Means
The acronym MSRP stands for manufacturer’s suggested retail price. The MSRP is the suggested sticker price you see on a car window, and it is the price the manufacturer suggests the dealer ask for the vehicle.
Read on to learn about MSRP and a few other pricing-related terms so you’ll be armed with knowledge and the right vocabulary when you visit a dealership to buy a new car.
TIP: If you’re researching a used car online, check the vehicle history report. Sometimes you can find out the MSRP of a vehicle on the original car window sticker if it gets posted with the report.
How Does MSRP Affect the Cost of the Car?
Although the MSRP is the suggested price, dealers have the freedom to ask more or less than this figure. If a car is in high demand, a dealer might include a market adjustment, which will increase the vehicle’s price beyond the suggested price. The dealer can do this because they feel that the market demand is high enough to ask for more than the manufacturer’s suggested price of the car.
Of course, dealers can also charge less than the suggested price for a car. In fact, the suggested price is typically a starting point for car negotiations and in many cases, customers insist on paying less than the MSRP.
Supply chain issues during the COVID-19 pandemic significantly cut the availability of new cars, however. The microchip shortage forced automakers to slow the production of vehicles and reduced the inventory on dealers’ lots. High demand and low supply contribute to many buyers paying more than the MSRP.
Dealers have the authority to make these changes to the car’s final selling price because a suggested price is merely that — a suggestion. It’s ultimately up to dealers to decide whether they want to follow it.
What is the Difference Between the Base Price and the MSRP?
The base price is a vehicle’s price without options, whereas the MSRP is the car’s price as it sits in the showroom — with options, destination charge, and any dealership add-ons.
For example, a car with a $24,000 base price might have an MSRP of $28,000 because it includes optional features plus fees totaling $4,000. This raises the MSRP for the vehicle far above the base price. A car’s base price is often measured before any destination charge, which is included in the window sticker price of any car you’ll buy from a dealer’s lot. The destination charge, also called a delivery fee, can range from about $900 to $1,700 in some cases, and that certainly makes for a higher MSRP.
RELATED STORIES: Destination Charges and Dealer Fees Explained
Base price refers to the lowest-priced version of that car. If you’re reading an expert car review, the author of that review may write something like “The 2022 Honda CR-V starts at about $26,400.” That price would be for the CR-V’s lowest trim level, the LX.
Most people don’t buy the least expensive version of a car; they buy somewhere in the middle, say a CR-V EX with some optional bells and whistles. If a new Honda CR-V LX starts at $26,400, you should figure that it’s close to being a $30,000 car with the features and options most people will want.
What is the Invoice Price?
Essentially, a car’s invoice price is the amount of money that the dealership pays the manufacturer for a vehicle. For example, a car with a $28,000 MSRP might have an invoice price of around $26,000, meaning that the dealer paid the manufacturer $26,000 for the vehicle. That means the dealer has a profit margin of around $2,000.
Given that the invoice price is the dealership’s cost on the car, you can’t always find a dealer that’s willing to sell the car for less than that. It is possible, though, because there are other ways that a dealership makes money from the sale of a car.
Dealers sometimes get an incentive from the automaker once they sell more than a set number of vehicles. There’s also something called holdback, which is an amount of money that the manufacturer pays the dealer after the sale of the car.
Another way for dealers to make money comes from the financing aspects of selling cars, which means that paying with cash isn’t necessarily a factor when negotiating for a lower out-the-door price. So even when a dealership doesn’t make any money from selling the car, it can still profit thanks to additional bonuses from the automaker.
Still, buying a car at or below the invoice price is an excellent feat.
RELATED STORIES: How to Buy a Car
How Much Lower Than MSRP Can I Negotiate for a New Car?
Most car-buying deals fall somewhere in between the invoice price and the MSRP. There’s no guarantee that your retail price will be less than what the manufacturer suggests. Remember that the dealer can charge more than the MSRP for new models that have high demand. Negotiating far below the MSRP is more likely when the dealer wants to move vehicles off the lot.
In many cases, a small car will have a narrow profit margin between invoice price and retail price. More expensive luxury cars may have a higher profit margin that creates more room for negotiation.
Figuring out how much you should pay when you’re buying a vehicle can be tricky, so check the car’s fair market range based on several factors, including the car’s popularity and the spread between its base price and invoice price.
When You’re Ready to Buy, Keep These Negotiating Tips in Mind:
- Don’t talk payment. Negotiate the car’s price and not a monthly payment. It can be hard to figure out the purchase price if you’re negotiating based on payment. You might end up overspending for the car if you concentrate on payment alone.
- Ask dealer for best price. Speaking first in negotiation isn’t a good idea, because your price might be higher than the dealer’s best offer. And be sure to counteroffer, even if their price is better than what you expected.
- Don’t sweat it. After the dealer’s best price and your counteroffer are on the table, don’t walk away from a good deal over a small amount. Over the course of a 5-year loan, the difference of a few hundred dollars equates to just $5 per month.
Related Car Pricing Articles:
- Buying a Car: How Much Do Dealers Mark Up a Car Over the Invoice Price?
- Average New Car Price Continues to Rise on Growing Truck Demand
- Buying a Car: 5 Ways to Get the Best Deal
Editor’s Note: This article has been updated for accuracy since it was originally published.
