Sarah T.
When you think of the most expensive things you’ll purchase in your life, a car is right up there, sitting at spot two. And that should be no surprise considering the average new car price in 2024 is sitting around $48,644. That’s a pretty big number, especially when you consider that the median income in the U.S. is just $1,139 per week—that’s $59,228 annually for those doing the math.
That’s why it is so important to know what you are getting into when buying a car. Doing some homework in advance can not only save you money, but keep you from some unpleasant surprises down the road.
In this article, the team at RateWorks will explain the concept of MSRP, what it stands for, and its significant in the car buying process.
What is MSRP?
If you’ve been shopping for a car, you’ve certainly seen this acronym in dealerships and on the window stickers of cars you’ve been admiring. MSRP stands for the manufacturer’s suggested retail price.
The car manufacturer sets the MSRP to give buyers a starting point for what they can expect to pay for a vehicle. This price includes the base cost of the car plus any standard features, and it prioritizes that all dealerships have a consistent price for the same model.
Manufacturers decide on the MSRP based on several factors:
- Production Costs: This includes everything from materials and labor to technology and design. The more expensive it is to make the car, the higher the MSRP.
- Market Demand: If a car is highly sought after, the MSRP might be set higher. Manufacturers consider how popular a model is and how many buyers are interested.
- Competitor Pricing: To stay competitive, manufacturers compare the MSRPs of similar models from other brands. They adjust the MSRP to align with or slightly above what competitors are charging.
Understanding MSRP helps you gauge whether you're getting a fair deal and how much room there is for negotiation. We’ll talk more about negotiation later in this article.
How is MSRP Calculated?
Now that you know what goes into the MSRP—production costs, market demand, and competitor pricing—let’s share how it is calculated.
- Base Price: The base price is the starting cost of the vehicle before any extras are added. It includes the fundamental aspects of the car, such as the engine, transmission, and chassis. It covers the core components that come with every vehicle of that model.
- Standard Features: The MSRP also includes standard features for every car. These typically consist of essential equipment like air conditioning, power windows and locks, a basic sound system, and safety features such as airbags and anti-lock brakes. These features are standard across all vehicles of that model.
- Optional Add-ons: Optional features and packages can significantly impact the final price. You can add additional upgrades to the vehicle, such as advanced navigation systems, premium audio packages, leather seats, or sporty trim. Each of these options comes with an extra cost, which gets added to the base MSRP, increasing the car's total price.
- Destination Fees: Finally, destination fees are included in the MSRP. These fees cover transporting the vehicle from the manufacturer to the dealership. They can vary based on the distance and logistics of shipping the car. Destination fees are a standard part of the MSRP and help make sure the car is delivered to the dealership ready for sale.
Differences Between MSRP and Other Prices
When buying a car, you may see prices other than just the MSRP, which can often be confusing. Here’s what to look for and how to differentiate between the different prices you see.
- Invoice Price: The invoice price is what the dealer pays the manufacturer for the car. It’s usually lower than the MSRP because it doesn't include the dealer’s markup or any additional costs. This price is a key point of reference for buyers, giving an idea of the dealer's cost. Understanding the invoice price can be useful in negotiating a better deal.
- Dealer Markup: Dealer markup is the difference between the invoice price and the MSRP. It’s how dealers make a profit. Sometimes, dealers will increase this markup based on demand or the car’s popularity, which can raise the final selling price above the MSRP. This markup can vary, so it's worth asking about it and considering it in your negotiation strategy.
- Out-the-Door Price: The out-the-door price is the total amount you'll pay to drive the car off the lot. This price includes the MSRP plus additional costs such as taxes, registration fees, dealer fees, and any optional add-ons or packages you’ve chosen. It gives a complete picture of what you'll be paying, unlike the MSRP alone, which only covers the base cost and optional features.
- Market Adjusted Price: In some cases, dealers may adjust the price based on current market conditions. This can mean a price above MSRP if the car is in high demand or a lower price if the market is saturated. These adjustments reflect changes in the market and can vary from one dealership to another.
Can You Negotiate the Price of a Car?
This often begs the question—can you still negotiate on the price of cars? And the simple answer is yes. Start by researching the invoice price and current market conditions when negotiating the price. Be prepared to discuss these factors with the dealer to make a strong case for a better price.
Remember, the MSRP is just a starting point; there’s often room for negotiation on the final price. Don't be afraid to ask for discounts or incentives; consider getting quotes from multiple dealers to compare offers.
RateWorks Offers Competitive Auto Loan Refinancing
If you’ve decided that now is not the time to buy a new car, consider refinancing your existing car. Doing so can save you not just on interest, but can lower your monthly car payments, too.
To learn more about our refinancing options, contact us to get a free quote.
