Why Are the Car Quote and the MSRP Different?

January 27, 2012

When a driver goes to buy a new car for the first time, there is a lot of dealership lingo in a car quote that he or she may not understand. One of these terms is the MSRP or Manufacturer’s Suggested Retail Price. It's crucial to know what this term means and how to use it if you want to pay a fair price for your next new vehicle.

What is MSRP?

The MSRP is also sometimes called a list price. It is a standard value set by the manufacturer. The MSRP is the result of legislation passed decades ago to stop auto sellers (dealers) from charging radically different prices for the same vehicle. However, the MSRP is not what most buyers and sellers agree on as the actual price for a new car. According to auto sales experts, it's more of a conversation starter that the buyer and seller use with a lot of other factors to come to a final agreement on price.

The MSRP psychology

One factor in whether you pay the MSRP, or close to it, is whether you are the type to go over a new vehicle offer with a fine toothed comb. A lot of the final price of a new vehicle depends on the buyer's outlook. Sophisticated patterns of supply and demand also affect how much the dealership can get for any specific vehicle. Those who give in easily to persuasion will probably not get much of a reduction on the MSRP, but on the other hand, buyers who use other tools to argue a case on value might get a final price below the MSRP.

Other factors

One huge factor that the MSRP doesn't take into account is car dealer cost. A dealer in a rural area zip code, may not have the same cost or overhead as a dealer in a different zip code, neighborhood or area. Dealers may also buy from the manufacturer at different prices with bulk deals or other arrangements. That means the dealer will price cars to make a profit, not just at MSRP.

Why Your Car Quote May be Higher than MSRP

According to some auto experts, in times past, the MSRP was set a little high, to accommodate extra charges like taxes, shipping fees, etc. Today’s MSRP tends to be closer to actual market value, and that means that buyers who don't account for extra charges will see their quote outpace the MSRP by the end of the negotiations. That's why some buyers say they will never pay MSRP plus costs. They will try to get a base price below MSRP so that those extra costs are covered in the MSRP estimate.

In the end, buying a new car means communicating with the dealership about how much you will pay. The laws of supply and demand, on an individual level, play a huge role in what your final car quote will be. Take advantage of the above knowledge as well as research on your specific vehicle to make sure you don't end up paying too much at the lot.