Updated: Mar 15, 2021
MSRP stands for Manufacturer’s Suggested Retail Price. In other words, it stands for absolutely nothing, since that price is almost never the selling price. Additionally, cars with the same MSRP are sold for different pricing, depending on the buying techniques of different customers. Yes, two vehicles built the same year, with the exact same equipment will have the same MSRPs, but it is not like a can of Tuna Fish, marked at $1.99. Every one of those cans will be sold at the same price… $1.99. Cars, and their MSRPs is a completely different situation! So, when you’re discussing the price of a new car with a Salesperson, and most likely their manager, you need to understand that yes, they want to sell a car, that’s their purpose, but all cars get sold! I once had a client who owned a mid-range import dealership, he inherited it from his father. He was born and bred into the car business. One day I was in his dealership waiting to talk with him, and I noticed a new car on his showroom floor. to be honest, I couldn’t not notice it! Each body part of the car was painted a different color! Crazy! The car had a red hood, one quarter panel was blue, other yellow, the roof still another color, you get the idea. When I sat down with the dealer, I couldn’t help but bring up that car! Sure it would be helpful to show someone exactly how the ‘metallic Blue,’ compares with the ‘Fire Engine Red,’ but a new car’s an expensive paint pallet! So, I had to ask the dealer, did he expect to sell this car, with this paint job? He looked at me, smirking naively and said, “every car gets sold,” and the comment came with a dismissive hand gesture! Grab my New Car Buyer’s Resources
Well, I’m not someone who accepts being spoken to in that manner, so every time I would visit this client, a broad smile would cross my face when I’d see that ‘party bus’ painted car sitting in his showroom, and it did as the seasons changed.
And, I’m sure you can imagine my reaction when I walked in and that car wasn’t in the showroom! I immediately inquired about it, and the dealer told me he finally sold it, it had been about a year, and he threw in the fact that he got a “really good price!”
So, the point of this story is, ALL cars get sold
So, if you think you’re going to ride into the dealership and be greeted like the hero who’s going to take that car off their hands, sorry to burst your bubble, but that’s not the case.
Regardless of the brand, make, model, if you’re shopping a car the dealer’s happy, but their mindset is, ‘great, but if you don’t buy it, somebody else will!’
MSRP, and it’s cousin the Invoice number are two figures manufacturer’s appoint to cars, and dealers use it to manipulate customers.
You see, MSRP has been used and abused so often that Invoice has not been inserted into the conversation, and both figures are misleading.
Too many shoppers think, MSRP is close to the selling price. This is true on special cars, like a Ford Shelby Mustang. In fact, it’s not uncommon for a Ford dealer
to get over MSRP for this type of car. But, a dealer might only be allocated one or two of these special edition vehicles. So the principle of supply and demand kicks in. And people essentially bid up the price.
The exact opposite is true for most cars. Dealer lots are full of the cars, and dealers can and should be worked against each other to determine who’s most interested in selling you a car!
When the car buying public began to be clued in on MSRP the auto industry began to use the term Invoice to great success.
Yes, the dealership is ‘invoiced’ the car with that figure, but the invoice is probably not what you’re imagining.
A plumbing supply house buys a pipe for $1.00, and sells in to a plumber for $2.00, you could say that pipe was invoiced to the supply house at $1.00.
This is clearly NOT how it works in the auto industry. The figure that’s quoted as invoice is not a real, bottom line number. It’s structured like MSRP, in that two equally equipped cars could share the same Invoice Price, but that’s number is NOT a clear indication of dealer expense as it relates to profit, confused, let me explain.
Now, not every manufacturer operates in the same manner, but a car’s invoice price can include additional money that’s not for the price of the car
For example, an advertising fee added to each car. This fee can be recouped by the dealership through a process call Co-Op, and Co-Op is an advertising reimbursement program.
Additionally, and most importantly, the car dealer’s profit from selling you a car is not the difference between the purchase price and invoice, no, no, no!
Manufacturers have added all sorts of profit opportunities for dealers that do not have anything to do with the invoice price, for example:
stair-step programs – some manufacturers set stair-step incentives for a month, quarter and or year. These programs incentivize sales, and when a dealer hits a sale goal on the ‘stair-step’ they earn a bonus that usually retroactively goes back to the first sale. It’s not uncommon for these stair step goals to be worth hundreds, sometimes thousands of dollars per car!
Cash in the trunk – manufacturers will sometimes provide cash in the trunk, a term that describes money added to the bottom line, based on sales performance. I’ve seen manufacturers do this for dealership remodeling to meet manufacturer’s specifications, buying manufacturer-recommended dealership furniture and accessories, meeting certain service satisfactory scores, and more! Cash in the trunk can end up being an enormous amount of money!
So, as a car shopper it’s almost impossible to determine exactly how much profit a dealer generates when you’re buying or leasing a new car
So, now you know there’s more to figure out beyond, how much off MSRP for a new car!
Thankfully you don’t need to fly blind in this process! I’ve created a simple, incredibly affordable new car buying course that will give you a step-by-step process to get you the best price possible for your next new car!
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