How the Pricing of New Vehicles Works

Negotiating the price of a new vehicle with a dealer can be fun, but also confusing and frustrating. The vast majority of buyers are not aware of why dealers have the freedom to make deals that are lower than the price on the window. This places them at a disadvantage when shopping for a new vehicle and starting to compare pricing. A vehicle will have three prices assigned to it as it leaves the factory. The one most familiar to buyers is the MSRP, which will be posted at the bottom of the window sticker after all the features are listed. This manufacturer’s suggested retail price is the price manufacturers think the car should be sold for at the dealership. That price actually is just a suggestion, and dealers can lower or raise it based on the demands for any particular model.

The base price of a vehicle refers to a model that has no optional features added to it. A manual transmission, a basic radio, ordinary tires, and airbags typically are included in a base model. Those are rarely available anymore, but they do exist. The third price is usually not made public on any dealership advertisements. It is called the invoice price, and it reflects the actual cost the dealer pays the manufacturer for the car. It is significantly lower than the MSRP and a bit lower than the base price. The dealer keeps both the base and invoice price in mind when negotiating a final sale price with a customer. Those prices dictate how low dealers are willing to go on pricing. That is also why dealers can have clearance sales, offer introductory pricing, and sell the vehicle at different prices for different customers. Many people shop expecting to pay the MSRP and do not haggle over the complete cost of the vehicle.

If dealers do not want to lower the price much lower the the suggested price, they may offer other incentives toward a purchase. That can be a gas card, free maintenance for three years, or an upgrade at no extra charge. The sticker price may be the same at different dealers, but the actual cost will vary when all is said and done. Visit a few dealers before buying a vehicle to see what each is willing to do to get your business. The savings can be substantial.