MSRP vs. Dealer Invoice

When it comes to getting a good deal on a car lease, being able to make sense of all the critical information is key.  Along with that, the right negotiating skills are also paramount.  When haggling over price, it’s important to differentiate between MSRP and dealer invoice.

MSRP – Retail Price

MSRP is short for Manufacturer’s Suggested Retail Price, defined as the recommended price set by the manufacturer at which to sell a given product, in our case, a vehicle.  It’s also known as the aptly named “sticker price” you see on the car window.  MSRP does not include a number of related costs, such as taxes, documentation and delivery fees, dealer-added options, and so on.  So once these costs are factored in, a car sold below MSRP could inch back up to that original price in no time.  Keep in mind that MSRP is just a yardstick, and cars can be valued well below or well above MSRP, based on things like location, demand, and competition, just like any other product.

Regardless, MSRP is important because its sets the standard for the residual value, which is determined by the financing company, and non-negotiable.  For this reason, you almost want the MSRP to be inflated, as the residual value is a certain percentage of the MSRP, 50% for example.

At the same time, you never want to pay the MSRP, because the dealer receives the car at a much lower cost, known as the dealer invoice.

Dealer Invoice – Wholesale Price

The dealer invoice is the wholesale price the dealership actually pays for the vehicle in question.  It’s important to understand that the dealer invoice can’t be taken at face value, as there are a number of discounts and rebates dealerships qualify for when they sell cars on volume.  Obviously they aren’t selling or leasing cars for a loss.  However, the dealer invoice is a better number to begin negotiations with, as it’s lower than the MSRP and more representative of the actual cost of the vehicle.

The difference between the MSRP and the dealer invoice is defined as the dealer’s profit margin. This number can vary significantly, driven again by popularity, supply and demand, etc.  Generally, the wider the spread between the two numbers, the more room to haggle.  The opposite is also true.

Tip: Car manufacturers boost incentives at the end of the model year, so dealers can lower their prices and still make a tidy profit.  This is your best chance to get a good deal on a new car lease, as they need to make room for the new models.