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.
The term MSRP is an abbreviation for “manufacturer’s suggested retail price.” This is simply the price the manufacturer proposes to the dealer to charge the car. You’ll see it on the Monroney (aka window sticker) as you search a dealership that buys cars – it’s the law to have it there.
However, the dealer does not have to charge that price at all and rarely does. It is, after all, only ‘recommended’. Usually buyers drive away because they paid less than the suggested retail price, but the dealer may also increase the price if a particular car is in high demand. Historically, this has meant recently introduced cars that have caught the attention of car enthusiasts or even the general public. However, the supply shortages caused by the COVID-19 pandemic led dealers to upgrade even relatively mundane new cars like the Kia Telluride and Toyota RAV4 Prime to staggering degrees. It’s even worse for enthusiast vehicles like the Ford Bronco who probably would have seen markings anyway.
So, how is the suggested retail price determined?
This price is determined by a manufacturer by adding up the base price, destination costs and options on the car. The base price is usually what the car costs, without any of the above costs. Put everything together and you look at the suggested retail price.
What effect does it have on what you end up paying?
The MSRP, also known as the sticker price, is probably the biggest factor in what you end up walking out the door and 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 that full suggested retail price, but more often than not a deal is made below the stated value.
It all seems pretty simple, right?
That’s right. The manufacturer’s suggested retail price is one of the easier concepts to understand when it comes to navigating the process of buying 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 will list the suggested retail price, so it’s easy to find out what a car costs online. Sometimes you see manufacturers use the suggested retail price to describe the price of a car without options or destination costs.
However, keep an eye out for promotions and sales that manufacturers hold every now and then. If you’re bidding your time and waiting for the car you want some cash on the hood, chances are you’ll be driving away with a new car for well below its listed retail price. Or, if the auto industry is stuck in a supply shortage, it may be best to delay buying a new car if you want to pay less than the MSRP (or no more than that).