MSRP and Dealer Mark-Ups: What You Need to Know in Today's Car Market

What is MSRP and How Does it Affect Car Purchase? Understanding the Manufacturer Suggested Retail Price (MSRP) and dealer mark-ups is essential for anyone in the market for a new car. The days when MSRP was simply a starting point for negotiation have changed, and today’s automotive market is more complex due to supply chain disruptions, increased demand, and a limited inventory of both new and used vehicles. This guide breaks down what MSRP means, how dealer mark-ups work, and how you can navigate the market to get the best possible deal on your next car purchase.

The Evolving Role of MSRP in a Changing Market

For years, the MSRP—also known as the "sticker price"—represented the upper boundary of what consumers could expect to pay for a vehicle. Negotiation was common, and buyers often whittled down the price from MSRP to secure a deal they considered fair. However, the post-pandemic car market has reshaped this dynamic.

The automotive industry continues to grapple with the aftershocks of a global microchip shortage and ongoing supply chain issues. These factors have drastically reduced vehicle production across major manufacturers, creating an imbalance where demand far outstrips supply. As a result, MSRP is no longer the ceiling but often the floor for car pricing, with dealers frequently adding market adjustments or dealer mark-ups, sometimes thousands of dollars above MSRP, due to the limited availability of vehicles.

Why Prices Have Surged Above MSRP

The key driver of rising prices is the ongoing supply shortage. In 2024, car production is still recovering, with many manufacturers struggling to keep up with demand. This has led to inventory shortages at dealerships across the country. When supply is low and demand is high, basic economics come into play—dealers can charge more because they know consumers have limited options.

For example, in 2021, it wasn’t uncommon to see vehicles like the Chevrolet Corvette C8 priced tens of thousands of dollars above the advertised MSRP. Today, while the situation has improved slightly for certain models, vehicles that are still in high demand—like the Kia Telluride or Ford F-150 Lightning—are frequently subject to these additional charges.

💡 Pro Tip: Don’t rely on MSRP as the final price. Always anticipate potential mark-ups, especially for popular models or vehicles in limited supply.

Invoice Price vs. MSRP: Understanding Dealer Profit Margins

To better understand the pricing of new cars, it’s essential to differentiate between MSRP and invoice price. The invoice price is what the dealer pays the manufacturer for the vehicle. This is typically lower than the MSRP, allowing the dealer to make a profit. However, there are additional factors in the dealer’s profit margin, including holdbacks—a percentage of the vehicle's price that the manufacturer pays back to the dealer after the sale. This means dealers can still make a profit even when selling a vehicle at or near invoice price.

In a balanced market, buyers would typically negotiate from the invoice price upward, aiming to close the gap between what the dealer paid and the MSRP. But in today’s market, this strategy is increasingly difficult as dealers can often sell cars at or above MSRP, leaving little room for negotiation.

📊 Market Insight: Holdbacks and mark-ups mean that even when dealers appear to be offering a vehicle at MSRP, they may still be making a significant profit—especially when considering the additional mark-ups for high-demand models.

Market Adjustments and Additional Fees: What to Expect

One of the most frustrating trends for car buyers is the growing prevalence of market adjustments. These are extra charges added by dealerships to reflect the high demand and low supply for specific vehicles. A car that is in short supply or highly desirable—such as a new Ford Maverick or Toyota 4Runner—could see market adjustments of several thousand dollars on top of the MSRP.

Market adjustments aren’t the only fees you need to watch out for. Many dealers also include costs for non-factory add-ons such as roof racks, off-road tires, or specialized trim packages. On top of that, there are administrative fees for paperwork processing, cleaning, and detailing. Some dealers may even charge for manufacturer advertising—costs that are sometimes bundled into the final out-the-door price.

How to Handle Additional Fees

While some fees are non-negotiable—such as destination fees (the cost of transporting the vehicle to the dealership) and state taxes—others can be discussed. For example, you may be able to negotiate on dealer-installed accessories or advertising fees. The key is to ensure that you’re focused on the final out-the-door price, not just the MSRP. This way, you avoid surprises when it comes time to sign the paperwork.

💬 Negotiation Tip: Always ask the dealer for a breakdown of the out-the-door price, including all fees. This will give you a clearer picture of the total cost and where you might have room to negotiate.

Navigating Today’s Market: Tips for Negotiating

In today’s market, negotiating a lower price than MSRP has become more difficult, but it’s not impossible. Knowing how to approach the conversation can still save you money.

1. Research the Market

Before stepping into a dealership, do your homework. Research both the national and regional prices for the car you’re interested in. Use tools like Kelley Blue Book and Edmunds to get an idea of fair market pricing, including dealer mark-ups.

• Check Inventory: High-demand vehicles with low supply will often come with steep mark-ups, but less popular models or those that are more readily available may offer better negotiating opportunities.
• National vs. Local Pricing: Vehicle prices can vary significantly based on location. If a particular model is scarce in your area, consider expanding your search radius or even shopping in neighboring states.

2. Know When to Walk Away

One of the most powerful tools you have as a consumer is the ability to walk away. If the dealership refuses to budge on a price that’s significantly above MSRP, you may be better off waiting or looking elsewhere. Given the current market dynamics, it can be tempting to settle for a high price, but patience can pay off—especially if inventories start to recover in the coming months.

🚶 Pro Tip: Dealers are more likely to negotiate at the end of the month or during large sales events like Memorial Day or Black Friday, as they try to hit sales quotas.

3. Leverage Your Trade-In

If you’re trading in a vehicle, use that to your advantage. In today’s market, trade-in values are exceptionally high due to the low supply of used cars. Make sure you get a competitive offer for your trade-in, and use it as leverage to negotiate the price of the new car.

🔄 Trade-In Tip: Get quotes from multiple dealers for your trade-in. This will give you a better sense of its value and help you in negotiations when purchasing your next vehicle.

The Future of MSRP and Dealer Pricing

The current state of the automotive market is driven by unprecedented supply chain issues, particularly the microchip shortage. As manufacturers slowly ramp up production, vehicle inventories are expected to recover, though it may take several more months for the market to fully stabilize. When that happens, we could see fewer dealer mark-ups and a return to the days when MSRP was the starting point for negotiations, not the final price.

However, certain vehicle segments, especially electric vehicles (EVs), may continue to experience higher-than-average demand due to growing consumer interest in greener technologies. As such, market adjustments on EVs and hybrids may persist even after supply chains stabilize for other types of vehicles.

⚡ EV Insight: With government incentives and an increasing push for electrification, expect dealer mark-ups to remain more common for electric vehicles, particularly for popular models like the Tesla Model 3, Ford Mustang Mach-E, and Rivian R1T.

Conclusion: How to Get the Best Deal

Navigating the car-buying process in today’s market can be tricky, especially with MSRP no longer representing the cap on pricing. However, with proper research, patience, and negotiation skills, it’s still possible to get a fair deal. Here are some final tips to keep in mind:

• Research: Know the true market value of the vehicle you want and understand what additional fees may be involved.
• Negotiate: Even in a tight market, there’s often room to negotiate—especially on dealer-installed accessories and additional fees.
• Be Patient: If you can wait, consider holding off until inventories recover and market conditions improve.
• Trade Smart: Maximize your trade-in value by shopping around and using it as a negotiation tool.

By staying informed and flexible, you can navigate the complexities of the current automotive market and ensure you get the best possible deal.