What does MSRP stand for? If you’re in the market for a new car, odds are you’ve come across the acronym “MSRP” multiple times. Some dealers may present a vehicle’s MSRP as its “official price tag,”. While others are willing to sell you a car for well under its MSRP. What’s the truth of the matter?
In this article, we’ll discuss what MSRP stands for, what it is, and how it works. You should be in a much better position to know whether you’re getting a fair price for a vehicle or not.
The Definition of MSRP
MSRP stands for “manufacturer’s suggested retail price.” A simple MSRP definition could be: “The price point at which a manufacturer suggests that a dealer sells a vehicle.” Since a car’s MSRP is often displayed on a sticker on its windshield, the MSRP is also called the “sticker price,” or “list price.” It is also sometimes called the “Monroney sticker,” named after U.S. Senator Almer Monroney, who sponsored the Automobile Information Disclosure Act of 1958.
If for some reason a vehicle doesn’t have its MSRP clearly visible on the windshield feel free to ask the dealer what it is. Also, don’t mistake a vehicle’s “addendum sticker price” for its MSRP. (The addendum sticker price is higher than the MSRP, and typically includes a lot of extra charges for dealer add-ons.)
How is a Car’s MSRP Determined?
As the name makes clear, a vehicle’s MSRP is determined by the manufacturer – and it is only a suggested price. A manufacturer has the option to stop doing business with a dealer that sells vehicles at a lower price than MSRP. They’ll even stop business with them if it’s higher than the MSRP.
Many dealerships list a vehicle’s MSRP for the make and model’s “midrange trim” – in other words, the midway point between the vehicle’s base trim option, and its most luxurious trim. Of course, you’ll have to do some checking in order to verify that the listed MSRP corresponds to the midrange option.
In addition, dealerships are required by federal law to display a vehicle’s MSRP on its windshield or one of its windows. In fact, only the purchaser has the right to remove the MSRP sticker.
Of course, when it comes to used cars, the original MSRP may not mean very much. After all, a brand-new vehicle’s value depreciates by about 20% the moment it’s driven off the dealership’s lot. If you add multiple owners, high mileage, accidents, and normal wear and tear into the mix, it’s obvious that a used car’s original MSRP shouldn’t have a big impact on its final sale price.
How Does the MSRP Work?
Just as an example of what the MSRP price is in real-world terms, and how it relates to other prices you may see, imagine this scenario:
- A dealership has a midsize sedan on its lot, with an MSRP of $30,000.
- Next to the MSRP sticker, there’s a prominently displayed addendum price sticker that shows the price as $34,000. In other words, you would pay $4,000 more for dealer add-ons (which could include leather seats, extra cup holders, backseat A/C vents, and so forth).
- The sedan’s invoice price may be $26,000. In other words, the dealership paid (or is going to pay) $26,000 to the manufacturer for the privilege of acquiring and selling the vehicle. This doesn’t include any extra incentives the manufacturer may offer the dealer, like a “holdback price.” (For instance, if the dealer ends up selling the vehicle, the manufacturer may pay them back a set percentage of the invoice price, usually between 2-3%.)
So as you can tell, the dealer would like you to pay $34,000 for the sedan, so that they can get the highest possible profit from the sale. If you can purchase it for close to $26,000 (the invoice price), then you’re probably getting a great deal. And right in the middle is the MSRP at $30,000.
Of course, this is just an example. Sometimes the MSRP is much higher than the invoice price, and other times they could be closer together.
Some Expenses Are Not Included in the MSRP
Besides understanding what the MSRP is, and how it works, it’s also good to know that some things are not included in the MSRP. For example, the following cost items are typically added on to your total price near the end of negotiations:
- Dealer prep fees
- Marketing fees
- Sales document fees
- Title transfer fees
Again, it’s helpful to keep these additional expenses in mind during your negotiations for a vehicle. If you’re not prepared, you could be in for a nasty shock when the total price comes up.
Should You Pay a Vehicle’s MSRP?
There’s really no one right answer to this question. It depends on a number of factors, such as:
- The car’s condition. If it’s brand-new, then you can expect to pay a price that’s closer to the MSRP. That may not be the case with a used car (even if it’s in great shape).
- The demand for the car. If you’re looking at a popular make and model, then the dealer may have the upper hand in the negotiations. After all, if you’re not willing to pay top dollar for the car, someone else probably is. You may be able to get a better deal for a car that’s not in high demand in your market.
- Add-ons and trim options. If you want a car with everything then you’ll likely have to pay at or above the MSRP. However, if you’re content with a midrange or base trim option, then you’ll have a better shot at paying less than the MSRP.
- The dealer you’re working with. Let’s face facts: some dealers are willing to work with you and others don’t.
At the end of the day, a car’s MSRP isn’t an official price tag, but more of a guideline that can help both you and the dealer in your negotiations. If you’re looking for a reliable vehicle at an affordable price, be sure to check out our services at AutoSwiftly today. We will work with you to ensure that you get a car at a reasonable rate – whether that’s the MSRP, or something different.
Recommended reading: MSRP vs. Invoice Price: What’s the Difference?