Car Buying Secrets

What is MSRP - Why It Could Cost You Plenty

By: Roosevelt Gist

MSRP (Manufacturers Suggested Retail Price) is the dollar amount assigned by the manufacturer and affixed to the bottom of the window sticker. It’s sometimes called the "monroney." The MSRP includes the cost of advertising, destination & handling, dealer profit, standard equipment, dealer holdback, and any optional equipment installed by the manufacturer.

The MSRP cannot be changed by the dealer. It is always found on the window sticker sent with the vehicle from the manufacturer. On new cars the window sticker must, by law, stay on the vehicle until sold. Some dealers will and can add additional equipment and fees to the selling price of the vehicle, but these items do not change the MSRP. The new selling price created by these additions is most often called the "list price".

Rarely should you pay MSRP or above. Most dealers recognize the savvy car buyer and are willing to negotiate a price less than the MSRP. Not so with the "Hot Cars" such as the Mazda Miata and Dodge Viper. When they were introduced several years ago, demand was so high and supply so low that most dealers took advantage of this situation. Some Miata buyers paid $7,000-$10,000 above MSRP and Dodge Viper buyers paid twice the MSRP for a $56,000 automobile. Today you can buy either car below the MSRP. Remember, 98% of all vehicles sold depreciate as soon as you drive it away from the dealership.

The success of Saturn’s sales strategy has changed how cars are priced and sold. All Saturn dealers sell at MSRP, with no negotiating, so shopping around will not affect your price. If you want to own a Saturn you will pay MSRP. General Motors has tested value pricing by selling selected models of Oldsmobiles and Chevrolets at MSRP with no deviating by the dealers. It’s an attempt to piggy back on the Saturn success story.

MSRP is also very important in calculating your lease payment. The residual value (estimated worth of a vehicle in the future) is calculated as a percentage of MSRP. Additional costs are then added to this figure to determine your total monthly lease payment.

Questions to ask the salesperson: Show me the MSRP on this car? Why have you marked this vehicle $__ above MSRP? If that is the case. What’s the dollar difference between the MSRP and the invoice price of this car?