What Does MSRP Mean?
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MSRP is short for manufacturer’s suggested retail price, and it is how much an automaker recommends a dealer should charge for a new car. You’ll also hear MSRP commonly referred to as a car’s “list price.”
Car dealerships are legally required to display the MSRP on every new vehicle’s window sticker. That doesn’t mean MSRP is what you’ll pay though, since dealers have the leeway to sell a car for more or less. Understanding the definition of MSRP and other pricing terms can put you in a better position to negotiate a fair price for a car.
MSRP is most frequently used for cars, but manufacturers of other retail items — like appliances and electronics — sometimes set an MSRP for more consistency in pricing from retailer to retailer.
How is a new car’s MSRP displayed?
When browsing cars on a dealer’s lot, you can find a vehicle’s MSRP on the federally mandated window sticker, which is also called the Monroney label. The Monroney label is named for Oklahoma Senator Almer "Mike" Stillwell Monroney, who pushed legislation to place such stickers on all new cars for a clearer breakdown of costs, including MSRP.
If you skip the traditional car lot when buying a car, you can still find a car’s MSRP through online resources such as dealer and manufacturer websites as well as most car-shopping sites.
Also, a few car brands that sell directly to consumers instead of using dealerships don’t list an MSRP. An example is Tesla.
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What does a car’s MSRP include?
Overall, the MSRP reflects the costs for an auto manufacturer to make and sell a car — such as labor, materials, sales and marketing — and some markup for dealer profit.
Car manufacturers figure numerous items into an MSRP, starting with the vehicle’s base price or its least expensive version. MSRP includes factory-installed options that are already part of the car when it arrives at a dealership, but not dealer add-ons like rustproofing or extended warranties.
MSRPs don’t typically include sales tax, destination charges for transporting a car from the manufacturer to the dealer, or other dealer handling fees.
MSRP meaning vs. other car pricing terms
When you’re shopping for a new car, you’ll see MSRP and list price — which are the same — along with invoice price, sticker price and out-the-door price. So how do all of these other pricing terms relate to MSRP? Here’s a brief definition and comparison of each.
Invoice price vs. MSRP
The invoice price, also known as dealer invoice or dealer cost, is how much the automaker charges the dealer on paper for a vehicle. However, the actual price that the dealer pays the automaker can vary, because manufacturers often offer rebates and incentives for dealers to bring down that number.
Unlike the MSRP, you won’t find the invoice price on the window sticker. However, you can ask the dealer for the invoice price or look online for this information from a car research site like Edmunds.
Sticker price vs. MSRP
The sticker price is the final price on the window sticker, and many people use the phrase interchangeably with MSRP. However, they aren’t the same. Sticker price includes MSRP plus charges like destination and handling fees, the cost of dealer-installed options and, if applicable, the gas guzzler tax for new passenger cars that don’t meet certain fuel economy standards. Sticker price may show on the sticker as total vehicle price or total MSRP.
Out-the-door price vs. MSRP
One of the most important figures for negotiating is the out-the-door price of a car. The out-the-door price is the total amount you’ll pay for the vehicle, which includes taxes, registration fees, title fees, documentation fees, dealer-installed options and any added dealer markups. These additional charges can add up to thousands of dollars on top of the MSRP.
If you only focus on a car’s monthly payment, or specific fees you don’t want to pay, it’s easy to overlook the total price. Focusing on the out-the-door price gives you a realistic figure for what you’ll be paying and enables you to negotiate on that. It can also prevent you from going over budget because of added costs you didn’t consider.
Pay attention to addendum stickers that dealers typically place next to car window stickers. Addendum stickers show the cost of parts or services the dealer has added to boost profit — sometimes adding thousands of dollars to the MSRP. If an addendum shows extras you don’t need, you may be able to negotiate their price or ask that they be removed.
When might you pay above MSRP for a car?
When vehicle supply doesn’t meet demand, the result can be paying above MSRP. For example, car shortages that occurred because of COVID-19 meant dealers were selling cars well above the MSRP. Fortunately, auto inventories are returning to normal, enabling car buyers to again negotiate below MSRP.
If you have your heart set on a specific make and model that’s new to the market and available in limited quantities, that could be another instance when you must pay above MSRP to get the car you want.
When a car is hard-to-get, dealers may add a “market adjustment” price to a car’s addendum sticker, which is really just additional dealer markup or profit.
MSRP in summary
When you’re shopping for a new car, you’re likely to have someone say to you, “Just don’t pay above MSRP!” And, while that’s a sensible goal, MSRP is only part of the equation when negotiating a car’s price.
Knowing a car’s MSRP as well as the dealer’s invoice price can give you an idea of how far below MSRP a dealer may go. Combining that knowledge with out-the-door price information can help you more confidently negotiate and save money on a new car.
