Car Deal Canada

MSRP Explained

MSRP Explained

MSRP stands for Manufacturer’s Suggested Retail Price. It is also sometimes referred to as the sticker price or list price. MSRP represents the recommended retail selling price set by automakers for each of their vehicle models. There are a few key things to know about MSRP:


Definition of MSRP acronym:


– MSRP = Manufacturer’s Suggested Retail Price


Other names for MSRP:


– Sticker price

– List price



What MSRP represents for automakers:



– The recommended retail selling price for each vehicle model

– A starting point for negotiations, not necessarily what is paid

– Based on the base model configuration

– Does not include taxes, registration fees, or optional dealer charges

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MSRP on New Cars

The MSRP on a new car is the base price suggested by the automaker. It represents the minimum amount for which they recommend the dealer sells the vehicle. The MSRP is based on the car’s standard equipment and features before any options or packages are added.

The MSRP is prominently displayed on the Monroney sticker, also known as the window sticker, that must be posted on all new vehicles. The Monroney sticker breaks down the various components that make up the total MSRP.

 

Base MSRP

The base MSRP refers to the price of the entry-level trim for that particular model. This is the minimum MSRP before any upgrades or options are added. For example, for a 2022 Honda Civic the base MSRP would be the price for the basic LX trim level without any additional packages or features.

 

Options/Package Costs

These refer to any additional features, equipment or packages that are added onto the base model. For example, upgrading from basic cloth seats to leather seats, adding a moonroof or navigation system, or bundling features together into a “convenience package.” Each option or package adds to the base MSRP.

 

Destination Charge

This is a standard charge added by automakers to cover the cost of shipping the vehicle from the factory to the dealership. The destination charge is not negotiable and is added on top of the base MSRP and any options/packages.

Adding up the base MSRP, options/packages, and destination charge produces the total MSRP found on the Monroney sticker and used as a starting point in negotiations.

 

Invoice Price vs MSRP

The invoice price is an important figure to understand when assessing a new car’s value. The invoice price, also known as the dealer cost, is the amount that the dealership pays the manufacturer to purchase the vehicle. This is different from MSRP, which is the manufacturer’s suggested retail price for the vehicle. Understanding the difference between invoice price and MSRP gives you more negotiation leverage when purchasing a new car.

The invoice price is always lower than the MSRP. This is because there is a “holdback” amount built into the invoice price that allows the dealer to sell the vehicle below MSRP and still make a profit. The holdback is typically 2-3% of the MSRP and represents a credit the dealer will receive from the manufacturer after they sell the vehicle. With the holdback accounted for, there is wiggle room for the dealer to come down from the MSRP in negotiations with the customer.

Many experts recommend trying to negotiate a sales price somewhere between the invoice price and MSRP when buying a new car. This gives both you and the dealer a fair deal. Some buyers are able to negotiate below invoice price if demand for a particular vehicle model is low. However, paying the full MSRP typically means you’re overpaying unless it’s a rare or customized vehicle.

Online resources like Edmunds and Kelley Blue Book offer invoice pricing data to help consumers figure out fair negotiation points. Armed with the invoice price and MSRP comparison, you can make an educated offer that maximizes your savings off the sticker price.

 

Advertised Prices vs MSRP

The advertised prices you see on dealership websites or in newspaper ads can sometimes be lower than MSRP. This is because dealers will factor in current rebates, incentives, and discounts to attract customers. However, the starting point for negotiation should still be the MSRP.

Manufacturers frequently offer rebates, low APR financing deals, or lease specials on certain models. This allows the dealer to advertise prices lower than MSRP. For example, an advertised price could be “MSRP $30,000 – $2,000 Customer Cash Rebate = $28,000”. While tempting, keep in mind you may be able to negotiate an even lower price from the original MSRP.

Dealers want you to see their advertised prices and believe that’s the best deal available. However, more money can usually be saved by beginning negotiations based on full MSRP and working down. Don’t let advertised prices throw you off from starting the negotiation where you should – at the manufacturer’s suggested retail price.

 

Getting the Best Deal on a New Car Purchase

Getting the lowest price on a new car takes research, patience, and negotiation. Here are some tips to make sure you end up with the best possible deal:

 

Research Fair Purchase Price

Use third-party pricing sites like TrueCar and Edmunds to see what others in your area have paid for the same make and model. This will give you a good idea of a fair price range to target.

 

Negotiate through Email

Negotiating over email allows you to take time crafting responses and easily compare offers from multiple dealers. Avoid negotiating only in person or over the phone.

 

Know Your Total Budget

Determine the total out-the-door budget including taxes, registration fees, and any dealer documentation fees. This will help you determine if offers meet your bottom line.

 

Secure Financing First

Getting pre-approved financing before negotiating price locks in your rates and payments. You won’t have to rely on the dealer’s financing offers.

Armed with third-party price data, pre-approved financing, and a budget, you can feel confident aiming for the best deal below MSRP through email negotiations.

 

Dealer Holdbacks

Dealer holdbacks refer to an amount paid from the automaker back to the dealership after a new vehicle is sold. This provides extra profit for the dealer and allows them to sell below the MSRP.

The holdback is typically 2-3% of the vehicle MSRP and varies by manufacturer:

 

  • Toyota – 2%
  • Honda – 2%
  • Ford – 3%
  • GM – 3%
  • Chrysler – 3%

 

For example, if a vehicle has an MSRP of $30,000, and the holdback percentage from the automaker is 3%, that means the dealer would receive $900 back from the manufacturer after the sale. This enables the dealer to sell the vehicle for less than the full MSRP and still maintain profitability.

The existence of holdbacks is why most experts recommend negotiating a price somewhere between the dealer invoice and MSRP. It provides a buffer for the dealer to come down from the full sticker price and still make money on the sale via the holdback.

 

Factory-to-Dealer Incentives

In addition to holdbacks, automakers also offer various factory-to-dealer incentives as a way to lower the sales price below MSRP. These incentives come directly from the manufacturer to help move certain models off dealer lots. There are a few common types of factory incentives:

 

Cash Rebates – Some of the most popular incentives, cash rebates offer an instant discount off the purchase price. For example, an automaker may offer a $2,000 rebate on a certain sedan model. The rebate lowers the net price paid compared to MSRP.

 

Special Financing – Manufacturers will periodically subsidize special APR offers through their captive finance arms. For instance, 0% APR for 60 months from the automaker’s financing source. This incentive allows a lower monthly payment.

 

Lease Deals – Leasing is incentivized by automakers offering subsidized lease terms to lower the monthly payment. A lease deal could offer $0 down and a lower monthly payment compared to financing.

Reviewing current incentives by model can provide additional negotiating leverage to save money off MSRP. Dealers are eager to move inventory carrying incentives, so savvy buyers can capitalize.

 

Reference Pricing Tools

When shopping for a new vehicle, it’s important to arm yourself with data on what others are paying in your area. There are a few key reference pricing tools that provide this information:

 

Kelley Blue Book

Kelley Blue Book (KBB) allows you to see the suggested price range for a particular make/model based on your zip code and optional equipment. This provides a benchmark for what you can reasonably expect to pay. KBB also shows invoice pricing and provides data on average amounts paid below MSRP for that vehicle.

 

TrueCar

TrueCar is another excellent reference site, as it shows real sales data for your specific geographic region. Based on actual transactions, you can see the average price paid, lowest price paid, and average savings off MSRP for the vehicle configuration you want.

 

Edmunds TMV

Edmunds True Market Value (TMV) tool provides the average price paid for a vehicle in your area along with a fair purchase price range. Edmunds gathers transaction data from dealerships and analyzes current market conditions to come up with its TMV pricing.

These resources allow you to make an informed offer grounded in real market data. While the dealer may initially counter higher, you have objective pricing information as leverage in negotiations.

 

When Paying MSRP Occurs

While negotiating a price lower than MSRP is ideal, there are certain situations when you may end up paying the full sticker price or close to it:

 

Supply and Demand Issues

If a particular vehicle is in very high demand and short supply, dealers have little incentive to discount it below MSRP. Popular trucks or SUVs that are backordered at dealerships give the seller leverage, as buyers have fewer options. Being flexible on color, trim, and options can improve your negotiating position.

 

Limited Inventory

New model year vehicles often have limited availability when they first launch, before production ramps up. This low inventory again reduces the dealer’s need to negotiate. Waiting a few months for selection to improve can lead to bigger savings.

 

New Model Markup

When an all-new or redesigned model hits the market, some dealers will add a “market adjustment” or markup over MSRP. They know excited buyers will pay more for the latest styling or features. Shopping around for a dealer at MSRP can avoid this.

While not ideal for your wallet, there are certain situations where paying full MSRP is unavoidable. The best way to combat it is being an informed buyer and choosing the right timing and dealer for your purchase.

 

Leasing vs Buying

MSRP also plays an important role when deciding whether to lease or buy a new vehicle. With leasing, your monthly payments are calculated based on the difference between a vehicle’s MSRP and its estimated residual value at the end of the lease term. The residual value is the estimated worth of the vehicle at the end of the lease and is set as a percentage of MSRP. The higher the residual value, the lower your monthly lease payments will be.

In addition to residual value, the other factor that determines your lease payment is the money factor. This is similar to the interest rate on a car loan. Money factor is applied to the residual value, not the full MSRP. Typically, leasing comes with a lower monthly payment compared to financing since you are only paying for the depreciation on the vehicle during the lease term, not the full purchase price.

However, at the end of the lease you do not own the car. This is the main tradeoff versus buying. With buying, your monthly loan payment is based on the negotiated full purchase price, but once it’s paid off you keep the car. Leasing has the benefit of lower monthly costs, always driving a new vehicle, and not dealing with resale. Buying allows you to build equity and eventually own the vehicle outright.

Whether leasing or buying, understanding MSRP and using it as a reference point in negotiations applies. Leasing uses MSRP to set residual values and money factor should be compared to current interest rates. Buying involves determining a fair sale price below MSRP. Consider both options carefully based on your budget and ownership goals.

 

MSRP on Used Cars

MSRP is not as relevant on used car purchases as it is on new vehicles. Since a used car has already gone through depreciation from the original owner, the manufacturer’s suggested price no longer applies.

Instead of MSRP, used car values are determined by factors like the vehicle’s age, mileage, condition, options, and demand in the marketplace. Resources like Kelley Blue Book provide more accurate appraisals of what a used car is worth based on its specifics and market comparables.

When shopping for a used car, checking sites like KBB.com and NADAguides.com can give you an idea of a fair price range to negotiate with the dealer. While used cars are sometimes advertised with an “MSRP”, it is not a meaningful number – focus instead on the market value from third-party pricing tools.

Understanding that MSRP is irrelevant on used cars allows you to negotiate based on real market data rather than an arbitrary sticker price. Do your research ahead of time so you enter negotiations informed and ready to get the best possible deal.

 

Sales Tax Calculations

An important consideration when purchasing a new vehicle is how sales tax is calculated. Many people assume sales tax is simply charged on the vehicle’s MSRP. However, this is not always the case.

In most provinces, sales tax is actually charged on the final negotiated sale price, not the MSRP. For example, if you negotiate the price down and purchase the vehicle for $25,000 when the MSRP is $30,000, you would pay sales tax on the $25,000 negotiated price, not the $30,000 MSRP.

This means the lower you can negotiate the purchase price, the lower your sales tax amount will be. On a $5,000 discount like in the example above, that could equal hundreds of dollars in sales tax savings.

When calculating the out-the-door price and monthly payment on a new vehicle, make sure to use the negotiated purchase price, not MSRP, when estimating sales tax. Many dealerships are happy to walk through a detailed price breakdown to understand the full costs.

Getting the best deal involves negotiating the lowest purchase price possible. An added bonus is reducing the sales tax bill. Just remember, sales tax is based on the negotiated sale price, not the MSRP.

 

Documentation Fees

In addition to negotiating the vehicle price, there are other fees to be aware of that are not included in the MSRP. One common fee is documentation fees, which are charged by the dealer to process all the paperwork and documentation required to purchase and register a new vehicle.

Documentation fees (also called “doc fees”) cover the dealer’s administrative costs for processing documents like the sales contract, title, registration and plates. Doc fees are set by each individual dealer, rather than the manufacturer, and can range anywhere from $100 to over $1000. These fees are not mandated or regulated in most Provinces, allowing dealers to charge virtually whatever amount they want.

Since documentation fees are not part of the MSRP, make sure you inquire about the doc fee amount ahead of time. Negotiating them down or even removing them altogether is possible in some cases. Don’t let high documentation fees catch you by surprise at the last minute. Know they are coming and be prepared to pay them unless you can successfully negotiate them away.

The bottom line is documentation fees are a reality when purchasing from a dealership. While annoying, paying them is typically unavoidable. Just account for them in your total budget and negotiate the best deal possible on the vehicle itself.

 

The Bottom Line on MSRP

While an important benchmark, MSRP does not dictate what you’ll actually pay. With research and negotiation, you can often pay less than sticker price. Here are some key takeaways:

 

  • MSRP is the manufacturer’s suggested retail price – it’s a starting point for negotiations, not necessarily the final sale price.
  • Many buyers are able to negotiate a price below MSRP by leveraging rebates, dealer incentives, and competitive pricing.
  • Knowing the dealer invoice price and fair market value for the vehicle gives you data to negotiate effectively.
  • Third-party pricing tools like Edmunds and Kelley Blue Book offer information on fair purchase prices.
  • With persistence and preparation, paying under MSRP is very achievable on most new car purchases.

 

Understanding MSRP provides context to get the fairest deal. While not set in stone, it remains an invaluable reference point for any major retail purchase. This guide breaks down everything you need to know about MSRP on a new car purchase to go into negotiations armed with knowledge. Do your research, set realistic expectations, and you may be surprised what’s achievable below that sticker price.

 

Conclusion

In summary, MSRP stands for manufacturer’s suggested retail price and represents the automaker’s recommended selling price for a new vehicle. While an important benchmark, MSRP should be viewed as a starting point for negotiations rather than the final transaction price. There are several key factors to keep in mind:

 

– MSRP tends to be higher than the dealer invoice price and what other buyers are paying in your area

– Incentives and rebates can lower the effective price below MSRP

– Options, add-ons, fees, and taxes will increase the final vehicle price

– Shopping around and negotiating can often yield a lower price

– Online pricing tools allow you to see what others have paid for the same vehicle

 

 

Understanding MSRP pricing gives you an expectation of what to budget for a new car purchase. However, rarely does anyone pay full sticker price. Doing thorough research on the make and model, knowing your budget, assessing all fees and taxes, and negotiating from a position of knowledge will help you reach the best possible deal below MSRP.

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Questions About MSRP

MSRP stands for Manufacturer’s Suggested Retail Price. In Canada, it is the price suggested by the manufacturer that dealers should sell a vehicle for before any taxes, fees, or additional options. The MSRP is meant to create a consistent baseline price across different dealerships carrying the same make and model.

Yes, the MSRP on new vehicles in Canada is almost always negotiable to some degree when purchasing from a dealership. The dealer invoice price, which is what the dealer itself paid, is typically a few thousand dollars below MSRP. This gives some wiggle room for negotiating a lower sale price. Doing research on fair selling prices for the specific vehicle can help with negotiations.

The MSRP in Canada includes the base price of the vehicle along with any standard equipment from the factory. This means features that come standard on the base trim level are accounted for. The MSRP does not include additional options, fees, taxes, or other charges dealerships may add. These are additional costs on top of the MSRP when purchasing the vehicle.

No, the cost of transporting vehicles from manufacturing plants to dealerships, known as freight or destination charges, are not included in the MSRP in Canada. These destination/freight fees are added by dealers on top of the MSRP and can add $1,000-$2,000 typically. This is standard practice across new car dealers in Canada.

No, sales taxes are not included in the MSRP price in Canada. The taxes added at the time of sale vary by province but typically add another 10-15% onto the vehicle price for the final out-the-door cost. Sales taxes are charged based on the full selling price minus any trade-in allowance.

The main taxes charged on top of the MSRP when purchasing a new vehicle in Canada are federal GST/HST and provincial sales taxes. The rate varies by province – Ontario has a 13% HST for example. Some provinces also charge additional levies and fees that can add a few hundred dollars onto the final price.

 

Generally yes, the MSRP price listed by manufacturers for vehicles in Canada tend to run 5-15% higher than the US MSRP for the identical vehicle. This is due to production costs, import expenses, currency exchanges rates, and other economic factors. So a $30,000 USD MSRP may translate closer to $34,000 CAD MSRP.

There are a few key reasons why automobile prices in Canada are higher on average than the same vehicles sold in the United States:

– Exchange rate differences between the Canadian and US dollars

– Higher costs for manufacturing inputs like materials and labor

– Import fees and transportation expenses getting vehicles to Canada

– Lower economies of scale in the smaller Canadian market

– Provincial/federal sales taxes and fees

The main fees charged by dealers on top of the MSRP when purchasing a new vehicle in Canada include:

 

– Freight/transportation fees ($1,000-$2,000 typically)

– Administrative or documentation fees ($100-$500)

– Federal air conditioning tax ($100)

– Tire tax ($15-$25 per tire)

– Provincial tire eco fees ($5-$45 per tire)

 

According to car buying experts, the average markup by Canadian dealerships on the MSRP price is around 5-10%. This means dealers on average will advertise new vehicles for sale around 5-10% above the official MSRP price set by the manufacturer. This gives some room for buyers to negotiate down towards the original MSRP.

 

Yes, a vehicle’s invoice price is typically a few thousand dollars cheaper than the MSRP price in Canada. The invoice price is what the dealership itself paid the manufacturer to purchase the vehicle. Knowing the difference between invoice and MSRP provides consumers leverage to negotiate a lower, fair sale price.

For the same make and model sold in both countries, the retail price in Canada tends to be 5-15% higher on average due to:

– Exchange rate increasing costs for Canadian dealers

– Higher transportation fees getting vehicles imported

– Provincial/federal sales taxes that don’t exist in most US states

– Overall increased operational costs for dealers in the Canadian market

For Canadians located near the US border, it is often cheaper to import a new car from an American dealership across the border rather than buying domestically. Savings of $5,000+ can sometimes be achieved after accounting for currency exchange, taxes, import fees, and lower US selling prices.

Yes, the MSRP is not fixed in Canada and dealers have some flexibility to negotiate below the manufacturer’s recommended price, especially on vehicles that have been sitting on the lot for awhile. Doing research on the invoice price and fair selling price range for the specific make/model can help secure the best deal.

 

 

The MSRP price set by automakers in Canada includes only the base price of the vehicle along with any standard equipment on the base trim level. No additional charges or fees are accounted for in the MSRP. Options, destination fees, taxes, and documentation charges get added on top of the MSRP at the time of sale.

No, dealerships in Canada can legally sell vehicles above the official MSRP price if they choose, and this has become more common in recent years due to vehicle inventory shortages. However, consumers always have the power to negotiate and should avoid paying large markups above MSRP whenever possible.

The MSRP manufacturer’s suggested retail price is set by automakers themselves for the Canadian market. The major companies like Ford, GM, Toyota and others determine the MSRP for their vehicles based on production costs, desired profit margins, competition, and the overall Canadian car market.

According to statistics from 2021, the average price for a new vehicle purchased in Canada was around $42,000 CAD including taxes and fees. However, there is a wide range depending on make, model, and trim from under $20,000 for basic sedans and hatchbacks to over $100,000 for luxury vehicles.

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