The MSRP Price

The MSRP is not what it used to be! Created from a bill in Congress in 1958, the "Monroney sticker" used to be a fairly accurate new car price.  MSRP stands for "Manufacturers Suggested Retail Price." ...So to say "MSRP price" is sort of redundant. Nevertheless, it is often referred to this way! But many people are confused about the MSRP.

The MSRP price of a car is exactly what is says...

It is a "suggested" retail price. And if you know anything about the word, "retail," you know that you NEVER want to pay retail for anything. As a matter of fact, all "retailers" know this, and - except for convenience stores and the like - price their items somewhere below retail, but nevertheless prominently display the retail price right next to the actual sale price. Obviously this is done to make it appear that you are getting a great deal.

...Same with the sticker on a new car. But it's shocking how many uninformed car buyers think they are getting a great deal when they pay the sticker MSRP price (or below). These people are a car dealership's dream customers.

Q:  When was the last time you paid the retail price for a clothing item?  Exactly. So you should look at the MSRP price in the same light; never pay it!  This is the first thing you should know about how to buy a new car.

Now, there's nothing wrong with any U.S. business making a profit - hey, we're a capitalist economy - not socialist or communist. But there's still plenty of room for you to save big bucks on your next new car purchase, with the manufacturer and dealership still getting a fair profit.

...The U.S. auto industry has made car pricing so complex that you will need to do a little research in order to get those big savings. But that's why you're reading this!

History of the MSRP
It was orgininally created as a "consumer service" back in 1958 from a bill passed through Congress. Since U.S. Senator Mike Monroney sponsored the bill, the MSRP sticker price is often referred to as the "Monroney sticker." But as a result of the bill, 3 main things have happened, as far as its effect on consumers:

1. This sticker is put on each new car by the manufacturer of every car sold in the U.S. and can only be legally removed from a new car by the purchaser of the car.

2. Consumers have become confused as to what it means to them, and how to use it to their advantage - if any.

 

3. The MSRP price listed on this sticker is nothing but fiction. The reason for this is because the car manufacturers - in an effort to move more vehicles - have teamed up with the dealers and created all sorts of legal "kickbacks" for the dealers for each car sold. These are disguised as things you've probably heard of like "dealer holdback," "factory-to-dealer incentives," and the like...

The way these legal kickbacks work is this:

Either immediately or at the end of the quarter (which is the case for the "dealer holdbacks"), the manufacturer will send a check to the dealer for selling a particular vehicle. The amount is a percentage of the sale - supposedly between two and five percent. No one knows for sure. But there are other perfectly legal wrangled kickback agreements that manufacturers and dealers are free to create, as consumers become adept at negotiating the dealerships down on prices.

So Exactly How Do You Use The MSRP To Help You Figure What Price To Offer The Dealership For Your New Car?

...Start out by all but ignoring the MSRP price on the "Monroney sticker."

But before we get into your specific formula for how to figure your offer, you should know some more 'BIG PICTURE' background info:

When you walk into a dealership, have all of the pricing info of the car that you are looking into buying.  Find out the factory invoice price for your target vehicle.  Contrary to popular belief, dealers do not have to tell you the invoice price on any car. This gives the dealer leverage over you.

But you will save yourself hundreds - likely thousands - of dollars by having this info in your "buyer's folder."  This is accomplished by doing some research on your car online from at least three sources.  (The first on the list is the company represented by the handy calculators on this website--on the lower left menu column.): 

http://www.InvoiceDealers.com

http://www.CarsDirect.com

http://www.Car.com

http://www.Autoweb.com

You need to calculate the cost that the dealer paid for the car and then make a reasonable offer to him if you want to get somewhere. Make sure you rehearse your offer ahead of time; know ahead of time what you will accept if the dealer doesn't accept your offer.
 
Here is what you can expect to find on the factory invoice: 

• Base model of the car.  
• All of the options packages.  
• Destination charge.  
• Holdback and dealer flooring help.  

DO NOT confuse the Invoice with the MRSP window sticker because they are not the same.

Quick tip:

If a dealership is very quick to show you the invoice, you should know this: This means that they are fully aware that they will be making money on that car off of you...

So you should immediately know that they CAN and WILL settle for a lower price for the car.

They can surprise you with an offer of only, say, one dollar over the invoice - making it look like you are getting a killer deal.  But remember that there are hidden factory incentives in the invoice price that lowers the cost of the car for the dealership.  They are going to make their proft - don't worry about that.  (But that's only fair, right?  You just don't want to pay more than you need to.)

Dealers are always going to try and tell you that they paid more for the cars than they actually did so that they can make a higher profit off of the sale.  They'll often try and make you feel guilty by telling you “I’m losing my shirt off of this deal”. But remind yourself of your mission and keep your buyer's folder close to keep you focused.

How Calculate A Fair Offer

To calculate what your offer should be to the dealership, you should get the factory invoice price (don’t forget to include the options in this price), and add 5% to that amount. This is a good way to calculate what your offer to the dealership should be.

When I mentioned the "options", I meant the ones that you can’t avoid; Some vehicles come equipped with a DVD player, sun roof etc. and these are add-on fees that you can’t avoid paying, so be sure to account for these at the beginning.

You should also be sure to account for any buyer rebates as well in calculating your offer. So in the end your offer should be calculated like this:

Dealer's Cost + 5% - any Buyer Rebates = YOUR OFFER
 

Calculating your offer to a dealership is as simple as that. Just make sure to do your background checks online for the actual dealer invoice. So when you are considering how much you can afford to pay for a new car, ensure you don’t get sucked into paying more than that amount. Stick to your guns.

If you are unwilling to pay more than your opening offer, let the salesman know that your offer stands firm and how they will profit from the offer. If they end up flat out refusing your offer, politely tell them you may be back but you're gonna shop around for a day or two...

If you tell him this, here's what will usually happen:

They'll call your bluff and allow you to start walking off. Once it becomes evident that you are actually walking away for good, they will stop you with a counter offer of some sort. At this point, just use your judgement on what you should do but keep in mind the price you didn't want to go above.

Another tactic is to allow you to get away, but they'll call you to say "the manager finally relented" or something to that effect.

You are hoping to buy a Dodge Stratus. You do your research at DealersInvoice.com, and find that the invoice price is $19,922; MSRP is $22,385. The dealer may offer you the car for $22,000, and shows you the invoice.

You learned from research that there is a $600 factory to dealer incentive; and a $447 holdback on the MSRP price (2%).

Based on the above calculations, the dealer’s real cost is $19,922 (invoice) - $600 (incentive) - $447 (holdback) = $18,875. This is far below the factory invoice number.

But add the 5% for your offer to that price, which will raise the price to $20,379. Now add, for instance, $455 for the destination charge that is always present. So you see that---based on the offer that the dealership offered---you just saved yourself $3410.

This may seem complicated but there is a sure-fire way of taking any and all guesswork out of it:   Go to www.CarsDirect.com or www.AutoUSA.com and download the online spreadsheet for this; the program does all the calculations for you!

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