What is MSRP?
Buying a new car can be a major purchase for most people, so they before they jump to a decision they want to make sure they're getting a good price. One key indicator is the manufacturer's suggested retail price, or MSRP. If a buyer can pay less than the MSRP they're sometimes, but not always, walking away with a good deal.
Identification
Historically, the MSRP was emblazoned on a car's windshield with a large sticker, which is why it is still today sometimes called "the sticker price." More likely, though, buyers will find a spec sheet on one of the car's windows listing the cars standard and additional features and including the MSRP.
Function
MSRP began as a free market mechanism to level the playing field for all consumers. In practice, one of the functions has been communicate to both retailers and consumers the relative value of a product, and the attendant status it symbolizes. In some cases, the MSRP may actually be artificially inflated, which gives retailers the opportunity to make sales at what seemed to be deep discounts. Both retailers and the manufacturers benefit if this results in an increase in sales volume.
Features
MSRP simply describes a starting point for the price of the basic model of a car, exclusive of taxes, titling fees, registration, or shipping. In most cases, several luxury features can also be included at additional cost. Because car dealers receive inventory through different channels, dealer costs can vary and so the extent to which they can undercut the MSRP will also vary significantly.
Significance
Retailers will not always advise potential buyers of a car's MSRP, however. Cars in high demand can often be sold for well more than the sticker price, so retailers will try to negotiate for more. The retailer can even obscure the true MSRP of the model by overvaluing optional features that may be included on a specific car. Since many buyers will only consent to pay less than what they perceive to be the MSRP, such selling tactics can be essential for the retailer.
Potential
In 2007, the U.S. Supreme Court upheld the right of a manufacturer to not send inventory to a retailer that sells below its suggested retail price, finding that minimum price requirements are not necessarily uncompetitive. With negotiation such a part of car culture, it's unclear the extent to which this practice might be carried over into showroom. The deterioration of the American auto industry such that it required federal loans in 2008 and 2009 makes it unlikely that car manufacturers would do anything to alienate buyers.
