New Car MSRP Vs. What You Can Expect to Pay
If you don't know what the MSRP and the sticker price represent, negotiating a new car price can be an unpleasant experience. The Manufacturers Suggested Retail Price tells the dealer where they should start negotiating price, but it doesn't tell you what you can, or should, end up paying.
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MSRP
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CarsDirect.com points out that by law the MSRP must be displayed on a new car, and only the buyer can remove this sticker. The MSRP is not what it actually cost to make the car, but what the manufacturer thinks you should pay for it.
The MSRP can vary by make, model, options, region of the country and even car color. If the model is in high demand, the dealer may be able to sell it to you for more than the MSRP.
Dealer Costs
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The dealer does not pay the manufacturer's suggested or actual price. He negotiates with the manufacturer, just as you do with the dealer. ConsumerReports.org says to look beyond the dealer invoice as well to find out what the dealer paid.
Rebates, dealer incentives and holdbacks may all contribute to the dealer's "true cost." To get the lowest price, begin your negotiations with a starting price, which is about 4 percent to 8 percent over the dealer's true cost. You can come close to finding the dealer's true cost online through resources such as the Consumer Reports wholesale price, included in their New Car Report.
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Negotiating
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The Federal Trade Commission (FTC) suggests that the difference between the MSRP and the invoice cost of a car may be between 10 percent and 20 percent. This is the dealer's profit margin, and this is where you should negotiate.
To save money, the FTC also suggests considering ordering your car. Cars on the dealer's lot may have many extra features that you don't want or need, and if you can delay gratification to wait for your car, you can save money by eliminating these extras.
Sticker Price
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You will see a second sticker on the car next to the MSRP, which will include items that add on significant profit for the dealer. You do not have to pay extras such as documentation fees, dealer preparation charges and market value adjustments (MVA) or added dealer profit (ADP).
What you do have to pay for are any extras that you choose to add to the car and a reasonable delivery and destination charge, according to Intellichoice.com.
Final Considerations
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The FTC points out that a new car is the second most expensive purchase an American consumer will make. Do your research on makes, models and cost ahead of time and you'll spend less and feel less pressured when you get to the dealership.
The library, bookstore and internet all have magazines with new car features and cost. You may be able to get specific dealer cost information for models in which you are interested. Always shop at more than one dealership even within your own area.
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- Photo Credit Image by Flickr.com, courtesy of Tony
