MSRP - What Does it Mean?

What does MSRP mean in car sales?

A car’s MSRP is its Manufacturer Suggested Retail Price, or the price a brand recommends its vehicle is sold for by a dealer. It is also known as a car’s ‘List Price’.

If this question comes up at your local pub quiz, only you and any car dealers in the room will be able to answer it, because it’s one of those acronyms we take for granted, without ever wondering what it stands for.

Any retail product can have an MSRP, but it is mostly associated with car purchases. Elsewhere, a more common alternative to MSRP is RRP, or Recommended Retail Price.

An MSRP is designed to keep car prices consistent across different dealerships and locations, giving buyers peace of mind that they’re paying roughly the same as everyone else.

An MSRP is also provided by dealerships because vehicle advertising is tightly regulated by the Australian Competition and Consumer Commission to ensure brands don’t exclude certain charges from prices and mislead customers.

However, it is best, and wisest, to think of MSRP as a starting point. As the name indicates, an MSRP is a ‘suggested’ price, and many cars will be sold above the MSRP, while others will be sold below that amount, depending on market forces like demand and supply.

One of the things that makes car buying either fun or annoying, depending on your point of view, is that negotiating with a dealer, and choosing the dealership to deal with, really can make a difference to the final price you pay.

An MSRP can be negotiated with a dealer, unless the manufacturer uses a fixed-price sales model.

A growing number of brands use this model in Australia (Tesla and Polestar are two examples) and because they use a fixed pricing strategy, their cars do not carry an MSRP. Instead they sell direct to the consumer and the price listed is the sale price, meaning there is no MSRP to negotiate on.

It’s also important to understand that MSRP is just part of a car’s true cost and isn’t the price you will actually pay to get your vehicle on the road.

While MSRP includes taxes like GST and the Luxury Car Tax (if applicable) it does not include additional ‘on road’ charges like stamp duty, compulsory third party (CTP) insurance and dealer delivery costs.

Hence you’ll often see in CarsGuide reviews, the phrase “plus on-road costs” after a price is quoted.

This is because on-road costs vary from state to state, meaning the price of a car will differ depending on where you live. Yes, that does seem silly, but so does having different speed limits in different states.

On-road costs can be significant, so there can be a sizeable difference between the retail price (or MSRP) and the selling price of a car.

Many factors go into how an MSRP is determined. The MSRP is set by a manufacturer’s local arm and includes the cost of buying the car from head office, the costs to bring the car to Australia, a profit margin for the local outfit and another margin for the dealer.

It also includes the cost of any equipment or optional extras specified for this market, plus any local import tariffs if a car is arriving from a country that has no free trade agreements with Australia.

Crucially, the MSRP also includes local taxes like GST and the Luxury Car Tax. It’s worth noting that while some brands use MSRP and List Price interchangeably, others do not include local taxes in the List Price.

Is MSRP negotiable?

Yes. In practice, an MSRP gives car buyers a starting point, or level playing field, to begin negotiations with a dealer.

How far under or over the MSRP a final selling price will be depends on many factors but by far the biggest influences are vehicle availability and consumer demand.

Dealers will be more reluctant to sell a car below its MSRP if it isn’t readily available and is highly sought after. Conversely, they may be willing to provide a discount on cars that are slow sellers taking up valuable real estate on a showroom forecourt.

Typically, though, there is a healthy margin factored into an MSRP so think of it as a starting point with a decent amount of wriggle room.

What other names is MSRP known by?

MSRP can also be referred to as a car’s List Price or its Recommended Retail Price (RRP). There are subtle differences, however.

While some brands do use List Price and MSRP interchangeably, it’s worth checking if local taxes are included when a dealer refers to List Price. Some brands include local taxes in their List Price while others do not. An MSRP will always include local taxes.

RRP and MSRP are essentially the same as they are both ‘suggested’ or ‘recommended’ prices. The differences are that RRP is more closely aligned to what you will actually pay (or the sale price), whereas MSRP doesn’t include additional charges like on-road costs.

And while any product can have an MSRP, the term is more commonly associated with bigger, high-cost purchases and is especially prevalent in the car industry.

So, while MSRP can sound confusing, it’s an important mechanism for consumers when buying a new car. It gives buyers confidence that a car’s price is in the right ballpark, while having a clear understanding of what MSRP includes (and doesn’t include) can be valuable when negotiating with a dealer.