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Buying a new car is an exciting process, but it can also be a tricky one. Besides finding a car that has all the features you’re looking for, you’re also going to want to buy one at a reasonable price.
A new car’s MSRP, or the manufacturer's suggested retail price, is the base price at which a manufacturer will suggest a retailer sell a new vehicle, but dealer-installed options like anti-theft systems or leather seats can cause a car’s price to rise beyond the MSRP. Registration fees, which are state-specific and unrelated to the value of a car, can also raise the price of a new car significantly.
In the end, a car’s transaction price, or how much you’ll actually pay, will depend on its MSRP, those additional fees, and how well you negotiate the final cost.
An MSRP, or a manufacturer's suggested retail price, is the price at which a manufacturer suggests a retailer should sell a new car
A car’s MSRP typically includes the base price, the cost of factory-installed options, and the destination charge
A car’s MSRP is not always the final purchase price, and interested buyers can still negotiate how much they're willing to pay
MSRP stands for “manufacturer’s suggested retail price,” and is also referred to as the list price or recommended retail price of a vehicle. Manufacturers can recommend an MSRP to a retailer when selling vehicles to them, but they legally cannot set prices at which retailers must sell those vehicles.
That means that retailers are not obligated to sell their cars at the MSRP and can adjust the transaction price based on a number of factors, including the popularity of the vehicle, dealer-installed options, and other fees.
The MSRP can usually be found displayed on a sticker in the car’s window or on a data sheet. Interested buyers can use this MSRP to help them negotiate a transaction price with the dealership.
The MSRP reflects the car’s base price and any factory-installed options such as heated seats, parking sensors, and sunroofs.
If you were checking out a car with an MSRP of $32,000, that MSRP would reflect the car’s base price, which is how much the car is worth without any options, and the factory-installed options, which are typically added before the car even reaches the dealer’s lot.
The destination charge, or how much the retailer spends transporting the vehicle from the factory to the dealership, is not included in the MSRP but will need to be paid by the customer as part of the sticker price. The sticker price also includes any dealer-installed options which could increase the car’s price by thousands of dollars.
Say a retailer installs $5,000 worth of dealer-installed options to a vehicle with an MSRP of $32,000. The vehicle’s MSRP will not change (as it was suggested by the manufacturer prior to the retailer selling it), but the sticker price, which includes the cost of dealer-installed options, could increase to $37,500 due to $5,000 in dealer-installed options and a $500 destination charge. The vehicle’s transaction price, or how much you’ll pay for the new car in the end, can also fluctuate based on your negotiations with the dealer.
Taxes and registration fees are also not included in the MSRP, but a retailer can register and title your vehicle when you buy a new car through them. Your registration fee will get factored into your transaction price, but these fees are completely separate from the manufacturer’s recommended price point.
As mentioned above, the price you’ll pay for a new car will vary based on the options installed in the vehicle, extra charges and fees related to buying a new car, and your negotiations with the dealer. Below are some helpful terms to know before buying a new car:
|Price||What it means|
|Invoice price||How much a dealer pays for a new car from a manufacturer. You can ask to see a car's invoice to help you negotiate a reasonable price|
|Base price||The cost of the car without any factory- or dealer-installed options. Cars are generally not sold at a base price because they're typically upgraded with options before they reach the lot|
|MSRP||The manufacturer's suggested retail price is how much a manufacturer recommends a retailer should sell a car for. The MSRP includes the base price and the cost of factory-installed options|
|Sticker price||The sticker price is the MSRP and destination charge combined, as well as any dealer-installed options added to the vehicle|
|Transaction price||This is the purchase price or how much you'll pay for the car after negotiating a final price|
Knowing the different price points of a new car can help you get a full picture of its value, and many of those price points are influenced by additional charges and installments made to the vehicle. Those include:
Destination charge: Also known as the “freight charge,” the destination charge is how much the retailer spent transporting the vehicle from the factory to the dealership, and can cost anywhere from $400 to $1,200
Registration fees: These fees include the cost to register a new vehicle in your state, the fees for your license plates, your title certificate fee, and the sales tax. These fees are state-specific and generally unrelated to the car’s material value or your negotiations with the dealer
Factory-installed options: These installations are typically made at the factory before a car is sold to a dealership. Factory-installed options are included in the MSRP and can include heated seats, parking sensors, sunroofs, and other mechanical features
Dealer-installed options: Dealer-installed options are modifications made to the vehicle by the retailer themselves. These cosmetic additions are included in the sticker price and can include floor mats, window tints, wheel locks, and cargo nets. A full list of dealer-installed options can generally be found next to the window sticker on the windshield of a new car
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In short, no. On one hand, car retailers can increase the transaction price of a car based on the car’s popularity or limited inventory. For example, if a highly anticipated make and model is about to be released, retailers can add a market adjustment to raise the selling price and make an extra profit.
On the other hand, interested buyers can still negotiate the price of a new car after finding out how much the make and model is selling for at other dealerships. If you have a particular make and model in mind and you do some research on the car beforehand, you may find out it’s selling for lower than the MSRP at other nearby places and can use that as leverage to negotiate the price down.
You can also use the invoice price, or how much the dealer paid the automaker for the vehicle, as a baseline for your negotiations.
Below are some steps you can take before you buy a new car to help you negotiate the best price:
Do your research: It’s helpful to know what kind of car or features you want before you step into a dealership. As mentioned above, researching the price of a car’s make and model at other dealerships can help you negotiate down if you need to. Knowing what trim levels or options you want can also help you decide on a ballpark price, so you’re not swayed by pricier add-ons when you start browsing
Determine what you’re willing to pay: Negotiations can go one of two ways: Ideally, you will get a new car at a lower cost than it’s sticker price, but it’s also possible to end up paying more for a new car than you’d want or need to. Determine how much you’re willing to spend on a new car in advance, so you can use that to help you leverage negotiations or find a car within your price range
Start with a precalculated low offer: When it’s time to negotiate, start with a low price (say, the invoice price plus a few hundred dollars for options), and inch your way up. You can also start with (or below) a price you saw the same car being sold for at another dealership, and see if the retailer is willing to sell it for the same price or lower. In general, you should not go above the lowest competing bid you’ve determined, or else it would just make sense to buy the same car elsewhere
Stand your ground: It’s a salesperson’s job to try to sell a car for as much as it’s worth, but ultimately, it’s the sales manager who has the final say. Raise your precalculated low offer a little at a time until you reach a reasonable price, but try not to take the dealer’s counteroffer which could be much higher than you need to pay for the vehicle
Know when to accept: Negotiations can take hours or even weeks to settle, so it’s important to gauge when to accept an offer and when to walk away. If you’re offered a price that’s in your range after careful negotiation, you should consider accepting it especially if the price is not likely to get much lower elsewhere. The same applies if you’re offered a more expensive deal but believe the car will be a better fit for you than you’d anticipated. It may be worth paying a little extra if the value matches the investment
Know when to walk away: Depending on how long the negotiations are taking and how far you’re getting between each back and forth, it may be time to find a car somewhere else. If you know you can find the same car or a similar make and model at another dealership, you may choose to explore your options with them instead. You should also consider exploring your options elsewhere if a salesperson uses rebates to reinforce the sticker price or if their final “take-it-or-leave-it” offer exceeds your price range
The final price you’ll pay for a car is partly based on the market price for that vehicle. Vehicles that are in popular demand might be harder to negotiate because someone out there is willing to buy them for that price, and a less popular car may be an easier negotiation because the dealer’s chances of selling that car are slimmer.
In today’s market, yes, a discount of 10% is a good deal. But regardless of how “good” that first deal sounds, you should always negotiate the transaction price. You can use the Kelley Blue Book or Autotrader website to see how the dealer’s initial asking price compares to the market. The quality of the deal also depends on the kind of car you’re buying. Ten percent off a vehicle that’s in popular demand is relatively more valuable than 10% off an older vehicle.
Kelley Blue Book (KBB) is a resource that lets you see what you might be paying for a new or used car based on what others have paid for the same vehicle. The car’s “Blue Book price” refers to the value of a vehicle through KBB.
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