When buying a new car, you probably notice the white stickers affixed to inside of windows of every car on the lot. There's a ton of information on those stickers, including the engine size, gas mileage, standard equipment and safety features. Somewhere in that verbiage is the pricing information, which gives you a chance to negotiate the cost of a new car based on the MSRP.
Discover the meaning behind the MSRP and what it can do for you. Knowing what is an MSRP can save you money over the long term when you negotiate a price and seek financing.
What does MSRP stand for?
MSRP stands for "manufacturer's suggested retail price." When a carmaker sends a vehicle to the lot, this is the amount the factory suggests to the dealer as a starting point for the selling price. Dealers don't have to follow the MSRP. It's merely a guide. Sometimes the price goes above the MSRP, but dealers mostly stay at or below the price suggested by the manufacturer.
The MSRP is higher than what the dealer pays for the car, otherwise the dealer doesn't make any money. What the dealer pays is called the invoice. The invoice price usually sits thousands of dollars below the MSRP, meaning the figures in between the invoice and MSRP give you some wiggle room to negotiate a price that is fair for both you and the dealer.
The total MSRP, otherwise known as the sticker price or dealer sticker price, takes into account any dealer add-ons, options, packages and any destination charges. For example, the MSRP for an SUV is $30,000. The sticker price may rise to $33,000 with a roof rack, tinted windows, upgraded trailer hitch, premium tires and the freight charge. Dealers can also throw in their own warranties and services to go along with the MSRP to make the sticker price a bit higher.
Some dealers simply say the MSRP is the total MSRP, since the price on the sticker window reflects everything included with the vehicle. The price you see on those white stickers includes everything listed on that sticker. That way, you know precisely what you're getting when you buy a new vehicle.
The MSRP may not be the only dollar amount listed on the sticker. There are other pricing terms you should know before shopping for a car.
Base Price Versus the MSRP
The MSRP is just one price you may see on the sticker. The base price is vehicle's price without any options or add-ons. The base price includes a factory warranty freight cost and standard equipment. Standard equipment on a car varies, but you can count on things such as air conditioning, seats, four tires, windows, windshield wipers and a cargo area. A freight charge, or the cost of having the car delivered, is included in the MSRP.
The base price is the lowest-priced version of the vehicle. Prices for special editions, extended cabs, four-wheel drive, flex-fuel engines and higher-end hitches may cost more. Cars with more luxurious interiors, better speakers and more cargo space may also have higher sticker prices beyond the base price. Dealers have sales literature about each vehicle on the lot. This information includes differences between standard cars and cars with more options.
Although the sticker does not itemize what each feature on the car costs, you do get an idea of what you get for the price. You can compare cars that look the same but cost more by taking a closer look at the base price versus the sticker price to see what add-ons and options you get from one vehicle to the next. For example, two SUVs may look identical on the outside, but on the inside one has cloth seats and other has leather seats. One may have additional entertainment features such as a built-in DVD player and small TV screens for kids to watch movies. Leather and added TV screens increase the costs and prices of vehicles.
One thing to watch out for are dealership fees. Next to the official sticker on the window, you might see something that says "pre-delivery inspection," "delivery" or "dealer prep" fees. You are not required to pay these fees. The fees listed on the official sticker price, provided by the manufacturer, are all you must pay to buy a car.
How and When a Dealer Changes Prices From the MSRP
Dealers don't have to follow the MSRP precisely. In rare instances, dealers can go above the MSRP if there is high demand for a particular vehicle. This especially occurs with cars that have an enthusiast following, or if there is a high-demand car on the lot without a lot of inventory. Great demand and low supply leads to higher prices.
Lower prices are the norm when it comes to seeing an MSRP on the sticker. Dealers may even go below the invoice price as a way to incentivize a sale and push inventory off of a lot. For example, August and September is when the new model years come out. As dealers make room for newer vehicles, they have to get rid of older ones even though they are brand-new and never been owned. Shop for a car in late October when shopping for a new car. Buyers may get as much as 8 percent off of the MSRP when dealers move older inventory that's been sitting on the lot for a year. Trucks don't change their designs much from year to year, so you may not see significantly lower prices for trucks on older model years.
You may even find a price that's below invoice. That's because dealers can get rebates, incentives and bonuses from manufacturers. Prices below invoice represent some of the lowest possible prices on a new car.
Getting the Best Deal
Take a look at the invoice price versus the MSRP. Usually, the price ranges 10 to 20 percent from the lower price to the higher price. For example, an invoice price is $20,000. The MSRP may go up to $24,000 (20 percent) on typical vehicles. Dealers are willing to negotiate a lower price than the MSRP. Sometimes, they can get deals from banks and loan companies for offering lower prices that bring in more business.
Some added costs for buying a car are non-negotiable. Documentation fees, sales tax, title and registration fees add to your final cost for buying a car. Sales tax varies from state to state, as does licensing fees. Ask your dealer for "out-the-door cost" for ownership. That way, you have an accurate amount for what you need to pay.
In addition to negotiating lower prices with dealers, watch out for sales at various times of year. Dealers take advantage of holidays, such as Labor Day, Independence Day and Memorial Day, to have sales. Examine end-of-year clearances when dealers get ready for a new calendar year and want to lower their costs of maintaining a lot of cars during winter weather.
Alleviate the pressure of navigating car costs such as MSRP, invoice price, base price and sticker price, by researching a vehicle's cost before you head to the lot. Manufacturers and dealers post a car's specs and prices online, that way you can see precisely what you get before even looking at a car in person. Once armed with this knowledge, you can hunt for your perfect car and then negotiate your ideal price with a dealer. Lower prices could lead to paying less interest on a loan when applying for financing.