The MSRP For A New Car (Defined)
The MSRP (Sticker Price) of a new car stands for the Manufacturer’s Suggested Retail Price and only represents what the Automaker states the dealership should set as their initial or asking price.
What does MSRP mean for car sales in 2023?
Little actually. A surge in third-party internet companies like TrueCar and CarGurus created a lot of what they referred to as “Transparency” when it comes to dealership pricing. The net effect was that the consumer no longer felt it was fair to pay anywhere near MSRP and now focuses more on the Invoice Price.
What is invoice pricing On Cars?
The invoice price is commonly referred to as the Dealer’s Cost and is called the invoice price because it is on the invoice the automaker sends to the dealer upon shipment. This is misleading, however because car dealers rarely ever pay what is listed on the invoice due to a variety of factors, such as:
- Cash Incentives (Dealer Cash)
- Manufacturer-to-consumer rebates
- Dealer Holdback (A percentage of MSRP or Invoice repaid to the dealer)
- Sales Volume Month to Month
What is the difference between the invoice price and MSRP?
A great example of where MSRP vs Invoice Price begins to get confusing is with a service like Truecar. Recently we did a review of Truecar where we dig deeper into the pricing they deliver consumers, but essentially they present car buyers the opportunity to get close to a dealer’s invoice price by showing what other people are paying.
The Problem?
The car dealership actually wants you to pay the invoice because they have spent years artificially inflating that price with a comfortable margin.
So, when a service promises to get you closer to or down to invoice because “That’s what everyone else is paying”, you aren’t actually getting anything special, you are getting what most people pay for a car.
Maybe that’s a good thing for you, and maybe you were hoping for more; honestly, it’s up to each car buyer whether you consider that “Fair” or not…
How much do dealers really pay for cars?
On average (Key point to make), the dealer’s cost, or better yet, what the dealership will actually pay for a vehicle, is likely somewhere around 2-3% of either the sticker or invoice price of the car.
I know what you’re thinking:
The difference between invoice and sticker can be substantial so, how does that help me calculate the dealer’s cost?
It doesn’t, but what it does do is reinforce the idea that you shouldn’t be trying to calculate what a fair price for a new car is by taking profit away from the dealership. The truth is:
The Bottom Line:
Only the dealership knows what the dealership paid for the car, and anyone telling you otherwise isn’t being “Completely Forthcoming” with you! The best case scenario for you to get you past what many would consider a “Fair” price and into the “Great” price category is to keep an eye out for these factors:
- It’s the end of a Month
- It’s the end of a Quarter
- It’s the end of a Year
How to negotiate the best price on a new car
Getting the best price on a new car won’t be so much about your abilities to get a dealership to relent; it’s going to be about finding a dealership with most of the previously mentioned factors in play:
- Needs to make a sale to hit an incentive
- Has a vehicle no one is buying
Usually, it’s a perfect storm of one or more of the top 3 factors along with at least one of the bottom two factors.
But you should know:
Car Dealers aren’t typically concerned with incentives early in a month, quarter, or year which is what makes waiting until the end of these periods more advantageous, however:
How much should you pay for a car?
It may not seem like it, but this is actually a very subjective question, meaning: The answer will be different for everyone.
If I had to give only one answer:
I would have to say invoice price (For most vehicles), remembering that there are certain limited editions, popular selling cars, or rare vehicles that dealers just don’t need to provide special pricing for to sell.
How accurate is Kelley Blue Book?
KBB For Used Cars
For used cars, shelf Kelley Blue Book. KBB and any other website or service that attempts to put blanket values on used vehicles (Cars with countless variables between them) is doing you a disservice because when they aren’t accurate, they end up confusing you even more!
Perfect Example:
- How do you compute the price of a car that was smoked in when it’s not revealed in the listing?
- How do you factor in minor damage that is present but never reported to Carfax or Autocheck?
- What if one of the buttons on the entertainment system is broken?
KBB doesn’t and frankly can’t calculate all of the nuances that comprise the actual value of a used car!
KBB For New Cars
Once again, the KBB computer lets us down, although, with new cars, it may be a little less of a letdown than we are used to. With new cars, you can remove the potential differences between two identical makes and models, However:
-You don’t remove the fact that one dealership is not the same as the other.
Remember what we said previously about getting a great price on a car at the dealership: You have to look for a dealer that is trying to hit an incentive because another dealership that hasn’t will drop their prices as low (Comparatively).
So, how does Kelley Blue Book evaluate a desperate dealer’s prices in the final few days of a month?
They Don’t!
How can I find out what my car is worth?
We pick on KBB a bit in that previous paragraph, mainly because they are the most well-known vehicle pricing service for the average car buyer, but the truth is that all of these online car pricing services are equally as inaccurate.
CarGurus (Car Guru)
One of the biggest perpetrators in misleading the consumer today can easily be CarGurus. Their platform offers vehicle listings that promise to show you upfront whether a price is a:
- Bad Deal
- Fair Deal
- Good Deal
- Great Deal
The biggest problem?
Dealers are allowed to exclude all sorts of add-ons and fees. So, if a “Great Deal” is great because it’s $1000 below market averages, but the dealer fee and doc fee add up to $1200, what kind of deal would you call that?
Conclusion:
The best way to determine the value of your car is to see what other private sellers are listing it for, combined with a somewhat overall view of listing prices across various sites such as CarGurus, Autotrader, and even Cars.com.
The idea is to find the averages “Yourself”, rather than leaving it up to a computer algorithm that can’t, or refuses to, read the fine print!
One final piece of advice on Finding a good deal on a car
Don’t Shop Too Many Dealers, it’s Counter Productive.
You should take care not to get too carried away by adding dealer after dealer to your shopping list in an attempt to hit the rock-bottom of prices. Price is a factor, but in 2018 and beyond, it is not the determining factor, not by a longshot. You should also know that statistically (Yes it’s been studied) the dealerships who are frequently the cheapest against their competition also score lower in experience and customer service, that is to say- A good portion of the time there is a reason they have to drop the price and it’s not usually out of a sense of charity.
Stay focused on the overall deal to drive away fully satisfied, and if you are lucky, you won’t have to go through this ever again or even use Autohitch because you will be a repeat customer at a great dealership!
Happy Hunting!
