If you've ever bought a car or are in the market for your first set of wheels, you've probably come across the term MSRP, which stands for manufacturer's suggested retail price. When you go to the dealership, you'll see stickers on new cars that list the MSRP, but it's not like a price tag you'd see at the grocery store: It's a suggestion, and you may pay more or less for your vehicle depending on multiple factors. Here's how it works.
What Is MSRP on a Car?
A vehicle's MSRP is the price the manufacturer suggests the dealer sell it for, and federal law requires dealers to display it on every new vehicle they sell. Manufacturers set the MSRP based on how much it costs to produce a vehicle with the features the car includes. For example, the base model will have a lower MSRP than a model with the highest trim level because it has fewer add-ons and features.
The MSRP can give consumers a ballpark figure of what they might expect to pay, but it doesn't reflect the total cost of the transaction. The price doesn't include taxes or fees, such as your state's vehicle registration fee, title, the dealer's documentation fee and more. Be sure to include these extra expenses in your calculations when buying a new car to understand the total cost.
MSRP vs. Invoice Price
You may also hear about the invoice price if you're shopping for a new car. That's the amount the manufacturer charges the dealer, but it may not be what the dealer pays the manufacturer. Here's why: The invoice price doesn't reflect cash incentives or dealer holdbacks that may reduce the amount the dealer pays. A holdback is a percentage of the vehicle price (usually 1% to 3%) the manufacturer pays the dealer to help reduce dealer costs.
While the invoice price may not reflect the actual amount the dealer pays the manufacturer, it can be a useful data point in the negotiation process—if you know what it is. You can ask the dealer, but they don't have to tell you. You may also find it on car-pricing sites.
Can You Negotiate MSRP?
Vehicle pricing may be negotiable—the final sale price depends on multiple factors, including supply, demand, dealer discounts and other incentive programs. You'll likely pay close to the MSRP or higher in a tight market with limited supply and high demand. However, when demand is low and supply is high, you have more negotiating power and are more likely to pay less than the MSRP.
But remember, the MSRP is just one part of the transaction. You may also consider negotiating the following to get the best deal possible.
- Financing: If you need an auto loan, dealerships offer financing to consumers. Negotiating loan terms, such as the interest rate, can help you save.
- Trade-in value: If you have a vehicle to trade in, the dealer will often compensate you for its value. Research the current book value of your trade-in before heading to the dealer to ensure you're getting a fair price. If not, you may be able to negotiate.
- Extended warranty: The dealer will likely ask if you want to include an extended warranty with your vehicle purchase. These can be pricey. Consider negotiating the price if you decide buying one is a good option.
The Bottom Line
The MSRP provides an estimate of what you might expect to pay when purchasing a new vehicle. However, the MSRP is rarely the final sale price. Depending on supply, demand, discounts and other incentive programs, you may pay more or less. To ensure you get the best deal possible, do your homework to find the market value of the vehicle you want to purchase before heading to the dealer. Compare prices from multiple dealers to help you avoid overpaying.
If you need a loan to finance your purchase, check out Experian's car payment calculator to determine how much you can afford.