The automotive landscape is chock-full of acronyms — to the point of becoming overwhelming sometimes. From AWD (all-wheel drive) to BEV (battery electric vehicle) to DOHC (dual-overhead cam), the alphabet soup seems virtually endless. But one acronym that’s been around for as long as the industry is MSRP, or manufacturer’s suggested retail price.

While MSRP might seem straightforward, there’s more to it than just the number on the window sticker. Understanding what it represents can help you negotiate a better deal, plan your budget, and make an informed purchase.

What Is MSRP Exactly?

MSRP means manufacturer's suggested retail price, which you’ll typically see on the window sticker of a new car at the dealership. It’s also commonly referred to as the sticker price or list price since it’s displayed on the windshield.

MSRP is not always the final price you’ll pay. In fact, it’s often just a starting point for negotiations. Depending on market demand, dealer incentives, and other factors, the price you actually pay can be above or below MSRP.

How Do Automakers Determine MSRP?

To determine the MSRP, automakers add together the following factors:

After determining these figures, they also add on a fair value retail markup. The retail markup is the gross profit margin the manufacturer expects the dealership to earn on the vehicle. 

Remember that MSRP varies from the invoice price, which is the dealer cost (i.e., the amount a dealer pays the car manufacturer for the vehicle). Car dealerships may also get a holdback fee from automakers, a commission for selling the vehicle. With a holdback, you may only pay at or near invoice pricing, but the dealership still gets some profit.

Dealerships can also earn profit in other ways, such as commissions on financing and after-sales add-ons, such as extended warranties, paint protection, maintenance contracts, GAP insurance, and more.

How Does MSRP Affect the Car Buying Process?

While the MSRP may be presented as the actual price you have to pay for a new vehicle, this is often not the case. If you understand the new car marketplace, you can negotiate a better price that gets you closer to the car’s invoice price. Understanding what impacts the MSRP is essential to:

• Understand market value
• Negotiate to get the lowest price
• Help your trade-in value‍
• Figure a fair final price of the vehicle

Is MSRP What You'll Pay for a Vehicle?

Not necessarily. MSRP is just a guideline, and several factors influence whether you’ll pay more or less.

When You Might Pay Below MSRP

• The model is widely available, with high inventory levels.
• The dealership offers discounts, rebates, or incentives.
• You’re shopping at the end of the model year, when dealers want to clear old stock.
• You’re negotiating aggressively and know the vehicle’s fair market value.
  

When You Might Pay Above MSRP

• The vehicle is in high demand or limited in supply.
• A new model has just launched, and dealers add a market adjustment.
• The car is a special edition or performance model with strong buyer interest.
• You’re shopping in a seller’s market, where demand exceeds supply.
  

Market conditions play a huge role in pricing, so understanding MSRP is key to getting the best deal.

Understand the Monroney Label

Before determining exactly what you'll pay for a vehicle, you'll need to know a bit about the Monroney label. In Canada and the United States, the Monroney label — the window sticker — contains all the relevant information on why the MSRP is what it is. Take a glance at the label, and you'll notice:

• MSRP
• Base price (price before fees and extras)
• Standard equipment and any trim level upgrades or options
• Safety ratings
• Fuel economy
• Engine displacement (four-cylinder, V6, etc.)
• Tax information
• Destination charge or destination fee (a non-negotiable fee charged by car dealers)
• Warranty information

You may also find information about the manufacturing process, especially if 15% or more of the manufacturing process or raw materials came from overseas.

Remember that Canadian law doesn't require a Monroney label on pre-owned and used cars. However, used cars may have a "buyer's guide," the car’s window sticker listing similar information.

Other Factors That Affect MSRP

While production costs and dealer markups are the biggest influences on MSRP, plenty of other factors can push the price higher. Fancy a leather interior? Craving a heated steering wheel for those cold winter mornings? Those little luxuries don’t come free.

A few things that can drive up MSRP include:

• Trim levels – A base model is always cheaper than a fully loaded version.
• Optional features & packages – Think premium sound systems, upgraded wheels, or advanced driver assistance tech.
• Engine upgrades – More power usually means more money, whether it’s a turbocharged four-cylinder or a V8.
• Drivetrain options – All-wheel drive and four-wheel drive add capability, but they also add to the price.
  

If you’re eyeing a specific model, check which features come standard and which ones will cost extra.

Watch for Incentives—And How They’re Used

Automakers regularly offer incentives, from college graduate rebates to government-backed electric and plug-in hybrid vehicle incentives. These discounts aren’t built into the MSRP—instead, they’re applied during financing or at the time of purchase.

But here’s the catch: Some dealerships play games with rebates to make it look like you’re getting a better deal than you actually are. Always double-check that the dealership isn’t inflating the MSRP and then applying the rebate to make the price seem lower.

For example, if a car has an MSRP of $25,000 and you negotiate it down to $24,000, but there’s also a $1,000 manufacturer rebate, your final price should be $23,000 after the rebate is applied. Some dealers, however, may try to use the rebate to hit your negotiated price, keeping the extra savings for themselves.

Always review the numbers carefully to make sure the incentives work in your favour—not the dealership’s.

Market Adjustments

You also have to keep in mind that sometimes dealerships work upward from MSRP. This generally only happens with high-demand models, such as when the new mid-engine Corvette arrived. This model was so popular that dealerships added significant market adjustments to the MSRP and made thousands more profit than the manufacturer intended.

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How MSRP Impacts Budgeting, Financing, and Negotiating

Although you hopefully won't pay MSRP for your vehicle, it plays a vital role in the negotiation process. That's why you should pay attention to the MSRP. It gives you a bargaining chip with the salesperson and can save money on monthly payments, leasing, and final pricing terms.

Using MSRP to Prepare a Budget

While you’ll typically pay less than MSRP for a car, it remains a good way to determine your budget.

If you’re paying cash, use the MSRP to determine your top-level budget. If you plan to finance the vehicle, use the MSRP to determine affordable monthly payments. If you get a lower MSRP, that just means bigger savings for you in the end.

Before you browse the internet for the ultimate vehicle, keep the MSRP in mind. Not only will this keep you financially responsible, but it will also help you avoid disappointment.

MSRP and How It Works With Financing and Leasing

You'll need to secure financing if you aren't paying cash for the vehicle. And while credit history and debt-to-income (DTI) ratio are important, the MSRP is also integral. When a lender analyzes your loan application, they'll also want the MSRP to determine if you can afford it or if they're willing to finance it.

Loan officers know you won't pay this price. But the MSRP gives them a basic idea of the loan terms, including loan length and interest rate. It also allows them to grant pre-approval so you can have a starting point for your car shopping.

Leasing a vehicle centres around the MSRP, as the price can adversely affect your monthly payments or down payment. Because you're leasing, the MSRP is non-negotiable. However, you can negotiate a down payment based on the MSRP to lower your monthly lease payments.

MSRP and Negotiating the Best Price

As much as MSRP is a starting point for you, it's also a starting point for salespeople. Any time you negotiate a purchase price at a car dealership, they typically want to start at the MSRP.

That's why knowing the MSRP and the fair value off the top of your head is crucial. By memorizing these figures, you can enter the negotiations confident and well-read.

But the most crucial fact in the art of negotiation is this: 

Always find a rock-bottom sale price (fair price) and work toward the MSRP. This lets you control negotiations rather than starting at the MSRP and working down. You're at a big disadvantage if you allow the salesperson to start right at MSRP.

In addition, you should also work these topics into the conversation:

Discuss these individually to keep the conversation flowing and remove any gray areas. And don't forget: you can always walk away.

Looking for a Used Car? MSRP Doesn’t Tell the Whole Story

If you’re considering a used car instead of a new one, MSRP isn’t always a helpful reference. Used car prices are affected by:

• Mileage and condition – The more wear and tear, the lower the value.
• Market demand – Some models hold their value better than others.
• Supply fluctuations – Prices change based on how many similar vehicles are available.
  

At Clutch, we make the process easy with transparent, no-haggle pricing on a wide range of quality used cars. Every vehicle in our inventory goes through a 210-point inspection and comes with an optional 3-month or 6,000-km warranty for peace of mind. Plus, our 10-day or 750-km test-own period lets you return or exchange your car if it’s not the right fit.

Skip the dealership games and shop for your next vehicle with confidence. Explore Clutch’s inventory today.