What does MSRP (or sticker price) mean?
If you’ve ever shopped for a new car at a dealership, you may have noticed a price called the MSRP. Short for “manufacturer’s suggested retail price,” it’s basically a price recommendation—what companies like Ford or Honda say dealers should charge for their vehicles. The actual selling price may be higher or lower than the MSRP.
MSRP is a common consideration when buying a vehicle, but you may also see MSRP when shopping for other retail items. Read on to learn more about MSRP and how it can inform your next big purchase.
Key takeaways
- MSRP is a manufacturer’s recommended retail price for products like automobiles, appliances and electronics.
- Dealers are required by law to post the MSRP on the windows of new vehicles for sale.
- The MSRP can include manufacturing and sales costs as well as the average retailer markup.
- The terms “sticker price,” “list price” and “recommended retail price” (RRP) mean the same thing as MSRP.
MSRP meaning: The story of sticker prices
You might be wondering why a car dealer would want to provide a suggested price to customers—especially when that price isn’t set by them.
Federal law requires MSRPs to be posted on the windows of new vehicles for sale—a result of the Automobile Information Disclosure Act of 1958. Typically, a window sticker will present the MSRP and other vehicle information to buyers. That’s why it’s often called the sticker price.
An MSRP can also be referred to as the list price for retail items like cars, appliances and electronics. While MSRPs keep items’ prices relatively consistent from store to store, the final price a customer pays might be more or less than the MSRP.
Although any retail item could have an MSRP, it’s most common with automobiles. However, you may not see an MSRP sticker on a used vehicle, as it’s not required and the value of used cars can vary significantly. Used cars often come with a buyer’s guide instead.
Why do car dealers provide an MSRP?
In the 1950s, Oklahoma senator Almer Stillwell “Mike” Monroney sponsored a bill—which later became the Automobile Information Disclosure Act of 1958—requiring car manufacturers and dealers to disclose a vehicle’s costs and features.
The law ultimately helped prevent dealers from taking advantage of customers and gave buyers a benchmark for the value of a car. Sometimes the MSRP is referred to as the Monroney sticker.
Vehicle pricing models: How the cost of a vehicle is determined
A vehicle’s base price is the cost without optional add-ons—like a sunroof or service contracts. Essentially, it’s the bare-bones cost of the vehicle off the factory floor.
The MSRP is typically higher than the base price. It accounts for manufacturing and sales costs, extra costs of getting the vehicle to the consumer, any of the car’s bells and whistles and sometimes an average profit margin for retailers.
Pricing beyond the MSRP
Because dealers are required to display the MSRP, many use it to their advantage by advertising that they don’t sell above the MSRP—or by keeping extra fees as close to the MSRP as possible.
However, the dealer may present additional costs beyond the MSRP. Extended warranties, maintenance packages and gap insurance can increase the final amount on the price tag.
Demand-based pricing
Dealers may lower a car’s price to drive sales or mark up the price if demand is high. Basing car prices on consumer demand—instead of just MSRP—is a way for dealers to move inventory while covering the overhead costs of their business.
Invoice pricing vs. MSRP: What’s the difference?
The invoice price is how much the dealer paid to buy the car from the manufacturer. That means a profit can be earned in the difference between the car’s invoice price and selling price. And dealers aren’t legally obligated to share the invoice price.
For example, if a car’s invoice price was $30,000 with an MSRP of $33,000, the dealer has $3,000 of wiggle room to sell the car at sticker price and still make a profit.
It might help to consider the 20/4/10 rule when calculating your purchasing power and deciding what car you could buy. Using the MSRP can help determine the type of vehicle you’ll be able to afford plus any add-on features.
MSRP for cars in a nutshell
Understanding what’s included in the MSRP of a vehicle—and what’s not—can help you make an informed decision if you’re thinking about purchasing a car.
Once you find that dream ride, check out these tips for negotiating car prices below MSRP. And it’s worth keeping in mind that a good credit score might help you secure a lower interest rate and better terms on a car loan.
