You have probably seen MSRP written on many sales price tags or heard the words list price when shopping, especially for a new car.
But what does MSRP mean? Let’s take a closer look at the MSRP meaning and how it applies to the market.
What is MSRP?
A Manufacturer’s Suggested Retail Price (MSRP) is exactly that- the suggested price that the manufacturer of a product
has come up with to recommend retailers charge the end consumer.
The MSRP price was created to help standardize prices across all retailers.
Before the MSPR was created, many small independently owned stores could not compete with large companies that could buy bulk and sell at a lower retail price.
The MSRP ensures manufacturers, distributors, and retailers can earn a profit
MSRP came into play through the fair trade statutes, which ensured smaller businesses some price protection against larger corporations.
The standard price or list price allowed small and large companies to compete on an even playing field.
Who Sets the MSRP?
The MSRP price is set by manufacturers to provide a perceived value of goods to consumers. It also ensures that manufacturers, distributors, and retailers all earn a profit.
The profit each earns is not standardized, and most MSRPs have substantial room for discounts and negotiations when it comes to large items.
The following example illustrates how MSRP offers customers an anchor of perceived value. If a store is selling a pair of jeans for $100 and another is selling that exact same pair for $1000, the perceived value of those jeans would be inconsistent. MSRP can offer more transparency
The MSRP acts as a standardized value system that should ensure a fair and accurate value for an item.
Why Doesn’t The MSRP Always Work?
The trouble with MSRP is that the retail price or list price is usually much higher than the manufactures wholesale price.
Since the price is only “suggested,” retailers can still offer huge discounts. It also means that manufacturers know that retailers are going to discount, so they set an inflated MSRP to cover the discounting rate.
Discounting is often used to move older stock that retailers haven’t managed to sell. Moving that inventory quickly usually requires a reduced price.
Retailers may be willing to lose some of their potential profit on the older stock as it can turn into dead money if it sits too long.
List Price for Vehicles
The market best known for MSRP and the term list price are in new car sales. Federal law ensures that you will find the “sticker price” displayed on the vehicle.
However, car dealers don’t have to adhere to the MSRP. They almost always have room to negotiate on price.
As a consumer, the MSRP of a vehicle will give you an essential starting point for negotiation.
It allows you to know instantly if the car is within your price range. The price displayed normally does not include upgrades or optional features for that vehicle.
If you only take one thing away from this blog, let it be the following. Car dealers do not have to sell the car for the suggested retail price. Most times, they have room for negotiation.
Get preapproved for an auto loan before you go car shopping. Knowing what you can borrow and the APRs with your preapproved loan will give you negotiating power.
Check the dealer’s offers, but make sure you are getting the cheapest auto loan before arriving on the lot.
Negotiating is not everyone’s cup of tea. Most people do not feel comfortable talking money with people they don’t know. It is awkward, but remember, this is their job.
Car salespeople negotiate all day, every day. If they say no to your offer, then make your decision based on that no. Remember, it doesn’t hurt to try. In fact, more times than not, it hurts your bank account not to negotiate.
Be aware that there are other fees involved when buying a vehicle other than the sticker price. Ask the salesperson what additional costs there are prior to making your decision.
New Car MSRP vs. Invoice: Which Should You Pay?
The manufacturer can only suggest an MSRP, it cannot set the price at which a dealer must sell a car.
A manufacturer may offer a discount that can help the dealer sell a car because keeping it on the dealership floor has a cost. This of course depends on the make and model of the car, as well as its supply and popularity.
What is the Invoice Price?
The invoice price is the price the dealer pays the vehicle’s manufacturer.
If a dealership can sell a vehicle for more than the invoice price, the profit is theirs to keep. The invoice price usually includes the base price for the vehicle itself, plus additional costs the manufacturer pays, such as advertising.
Remember, MSRP is just a suggested price. If you know what you want, shop around, look for the best deal, and negotiate.
It’s worth trading a 10-minute uncomfortable conversation with someone you will likely never see again for potential savings of thousands of dollars.
Negotiating below the MSRP can pay off. We want to hear from you, have you had success negotiating a sticker price of a vehicle?
- Cars.comaccessed on July 15, 2022