MSRP vs. Invoice Price: Understanding New Car Pricing

When buying a new car, understanding the pricing terms like MSRP and invoice price can significantly impact your negotiation strategy. This guide will help you navigate these terms and make informed decisions.

What is MSRP?

The Manufacturer's Suggested Retail Price (MSRP) is the price that the car manufacturer recommends the dealer sell the car for. It's often referred to as the 'sticker price' because it's displayed on the car's window sticker at the dealership.

MSRP is determined by the manufacturer and includes the base price of the vehicle, any additional features, and the destination charge. However, it does not include taxes, registration fees, or dealer fees.

What is Invoice Price?

The invoice price is the amount the dealer pays the manufacturer for the car. It is often lower than the MSRP and serves as a starting point for negotiations. The invoice price includes the base cost of the vehicle and any additional options or packages the dealer has ordered.

It's important to note that the invoice price may not reflect the actual cost to the dealer, as manufacturers often provide incentives, rebates, or holdbacks that reduce the dealer's effective cost.

How MSRP and Invoice Price Affect Negotiation

Understanding the difference between MSRP and invoice price is crucial for effective negotiation. Here are some strategies to consider:

Start Below MSRP: Since MSRP is the suggested retail price, there's often room for negotiation. Aim to start your offer below the MSRP.
Know the Invoice Price: Knowing the invoice price gives you a better idea of the dealer's cost and helps you negotiate a fair price. Websites like Edmunds and Kelley Blue Book can provide this information.
Consider Dealer Incentives: Be aware of any manufacturer incentives or rebates that might lower the dealer's cost, allowing you to negotiate a better deal.

Why Dealers Sell Below MSRP

Dealers often sell cars below MSRP to remain competitive and attract buyers. They may also receive manufacturer incentives that allow them to offer lower prices while still making a profit.

Additionally, selling at or below invoice price can help dealers meet sales quotas, which might qualify them for bonuses from the manufacturer.

Conclusion: Making an Informed Decision

Understanding MSRP and invoice price is essential for making an informed car-buying decision. By knowing these terms and how they affect pricing, you can negotiate more effectively and potentially save money on your next vehicle purchase.

Remember to research thoroughly, use reliable sources, and don't hesitate to ask questions during the negotiation process. With the right knowledge, you can confidently navigate the car-buying landscape.