This is part of our Car Buyer Glossary series, which breaks down all the terms you need to know when buying a new or used car from a dealer.
When you’re shopping for a new car, you’ll likely come across the term “MSRP” when it comes to pricing. In fact, MSRP is an acronym for “manufacturer’s suggested retail price.” It’s an apt name as it’s simply the price that the manufacturer suggests to the dealer for the car. It is also known as the sticker price. You’ll see it on the Monroney (aka window sticker) when you look for cars at any car dealership – it’s required by law to have it there.
However, the dealer does not have to charge this price at all and in fact rarely does. After all, it is only “recommended”. In most cases, buyers pay less than the MSRP list, but the dealer can also increase the price if there is strong demand for a particular car. In the past, this meant recently introduced cars that have caught the attention of car enthusiasts or even the general public. However, supply shortages can result in dealers adding markups to even relatively mundane new cars, as was the case during the COVID-19 pandemic.
So how is the RRP determined?
This price is determined by a manufacturer by adding the vehicle’s base price, destination charges and options. The base price is usually the price the car costs, excluding the costs mentioned above. When you put it all together, look at the MSRP.
Does the RRP correspond to the selling price?
No. Remember, the “S” in RRP stands for recommended. It’s basically a starting point for negotiations
How does MSRP affect your final price?
The MSRP, also known as the sticker price, is most likely the biggest factor in what you end up paying. Of course, you can negotiate a lower price if the dealer is willing to negotiate. Dealers will always try to get you to pay the full RRP, but in most cases a deal will be done for less than that.
Are taxes included in the RRP?
No. Sales tax and registration fees are not included in the RRP. However, if a gas guzzler tax is levied on a particularly inefficient car, this is included in the vignette price.
How much less than the MSRP is the dealer invoice?
The invoice price is the amount the dealer pays the manufacturer, which is usually hundreds or thousands less than the MSRP. However, the difference between the invoice and the RRP is usually less than 10%. Dealers are unlikely to reveal the invoice price of a car.
How much discount off the RRP can I negotiate?
That depends on the car, supply and demand, and whether there are incentives. You can probably get a better price for a slow-selling model, but for a newly released collector’s car, for example, you might be lucky to avoid paying a premium above RRP. There’s no magic number here, but researching what other people are paying for the same model – the market value – could help you decide what you think is a fair price when you go to the dealer.
Does the MSRP include the destination charge?
The advertised MSRP typically does not include destination charges (some automakers charge them), although a window sticker includes the destination in the vehicle’s total MSRP, which includes options and other additional equipment.
It all seems pretty simple, right?
That’s right. Manufacturer’s Suggested Retail Price is one of the easiest concepts to understand when navigating the purchase of a new car. It’s a super easy way to compare vehicles in the same segment based on what a manufacturer thinks the car is worth. Most manufacturers’ websites list the MSRP, so you can easily find out how much a car costs online. Sometimes you’ll see manufacturers use MSRP to describe the price of a car without options or destination charges.
However, keep an eye out for promotions and special offers that manufacturers run every now and then. If you wait and wait for the car you want so you can have some cash on the hood, there’s a good chance you’ll walk away with a new car well below its advertised MSRP. Or if the automotive industry is experiencing supply shortages, it may be best to postpone your new car purchase if you want to pay less than the MSRP (or no more).
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