What is MSRP?
MSRP stands for Manufacturer’s Suggested Retail Price.
This is the amount that a car manufacturer recommends their dealerships use as the selling point of a car, truck, van, or SUV. This suggested price will be identical for every one of a manufacturer’s dealerships.
To understand how this MSRP arrangement works, it’s important to know the difference between a manufacturer and a dealership.
The Difference Between a Manufacturer and a Dealership
A common misconception about the automotive industry is that the manufacturers—Honda, Ford, Nissan, Dodge, etc.—operate their dealerships. From the outside, it makes perfect sense. Their names and logos are on the front of the buildings, these places sell their cars, it seems pretty clear these people are all in cahoots. Well, that’s only sort of true.
The manufacturers are just that: car manufacturers. They are largely responsible for designing, building, and marketing their vehicles. That’s about it. When it comes to actually selling them, they leave that up to the people who own and operate their dealerships.
Dealerships are licensed, you see. Individuals own dealerships, not the car companies themselves. Essentially, every car dealership operates as an independent business on behalf of the manufacturer. Or, in the case of Go Auto, an auto group (owned by one family) will collectively own a number of dealerships.
As a part of the licensing deal between the manufacturer and the business owner, the dealership is allowed to use manufacturer branding and logos to sell that manufacturer’s cars. But in return, the manufacturer gets to lay out some ground rules when it comes to how to sell their vehicles.
MSRP (or, again, the Manufacturer’s Suggested Retail Price) is one of these rules.
MSRP vs Sticker Price
MSRP vs Sticker Price
The MSRP typically includes a vehicle’s standard equipment and factory-installed parts and accessories. This means that it does NOT include any additional add-ons or extras that the dealership has put into the vehicle. These added features (like remote starters, winterization packages, etc.) will increase the value of the vehicle, and so, in these cases, you might end up paying more than the MSRP.
What is Not Included in the MSRP?
Buying a car can be confusing. While you’re shopping around you may hear terms like MSRP and Sticker Price, but you might also here things like Base Price, Invoice Price, Sale Price, etc. What do they all mean, and how are they different from one another?
Hopefully this helps:
MSRP – As we’ve already talked about, the MSRP is the price that the manufacturer (Ford, Hyundai, Kia, Volkswagen, etc.) suggests its dealerships sell a vehicle at. Essentially, this is the recommended Sticker Price.
Sticker Price – The actual price that a dealership chooses to sell a vehicle at. It can be the same as the MSRP, but it can also be higher or lower based on that month’s rebates and any added accessories.
Base Price – This is the suggested price for a vehicle without any additional features or accessories. In other words, the Base Price is the sticker price for the lowest trim of a vehicle (AKA the “base model”). This is usually what’s meant when an advertisement says, “Prices start at …” Typically, the MSRP you see advertised will be a mid-level model, one that includes a few of the cool new features available. It’s not the bare bones version, but it’s also not pimped out, either.
Invoice Price – This one is important! This is the price that the dealership paid the manufacturer to buy the car. Yes, they have to buy these vehicles in advance. They don’t simply pay the manufacturer when the sale happens. They pay for it up front and then try to recoup that cost (plus a bit more) when they sell the car to a consumer. For example, a manufacturer might advertise a car for $30,000 MSRP. The dealership paid $26,000 for the vehicle (aka, the Invoice Price). Thus, the dealer will make about $4000 from the sale.
Why is this important for you to know? Because every so often dealerships will have “Invoice Pricing” events, which means they’re selling their vehicles for the same amount they paid for them. If you see a vehicle you like with Invoice Pricing, then that’s the largest possible discount you could ever receive on that vehicle. Don’t miss out on a great deal! Note: you may also hear the term Factory Price instead of Invoice Price. They mean the same thing).
Sale Price – The Sale Price is the price that you end up settling on. Whatever the MSRP, Sticker Price, and Invoice Price are, they may all end up differing from the final Sale Price. The MSRP may end up being larger or smaller than this price, depending on the market, how much bargaining was involved, whether you purchased additional add-ons/features, etc.
Payment Price – If you’ve decided to finance or lease a vehicle, the Payment Price is what you’ll pay every week/two weeks/month (depending on the agreement you signed).