What's the Difference Between MSRP and Invoice Price on New Cars?

When buying a new car, you’ll encounter terms like MSRP and invoice price. What do they mean and what’s the difference? Understanding how MSRP and invoice pricing works is key to negotiating the best deal. This guide examines the two prices and how knowing the invoice price helps buyers save money.

What is MSRP?

What is MSRP?

MSRP stands for Manufacturer's Suggested Retail Price. This is the "sticker" price automakers attach to new vehicles on the Monroney label.

The MSRP:

• Includes the base price plus options, destination fees, and taxes
• Represents the highest price for which the manufacturer recommends selling the car
• Gives buyers a reference for the market value of a particular model
• Is almost always higher than the dealer invoice price

MSRP sets expectations for the highest fair price - nearly all transactions pay less than full sticker.

What is Invoice Price?

The invoice price is what the dealer pays the manufacturer to obtain the vehicle for sale on the lot.

The invoice price:

• Represents the dealer's base cost before overhead and profit margins
• Is typically 3-10% below the MSRP on most models
• Occurs after incentive programs and holdback credits
• Is not the dealer's true cost due to other adjustments

Invoice provides a benchmark for negotiating but doesn't reveal full dealer cost.

Understanding Car Pricing Terms: Beyond MSRP and Invoice Price

How Much Lower is Invoice Price vs. MSRP?

Comparing invoice to MSRP:

• Mass market brands: Invoice is 5-8% lower than MSRP
• Luxury brands: Invoice is 3-5% lower than MSRP
• In dollars, invoice is usually $1,000-$3,000 less than MSRP
• Larger differences on models with high rebates and incentives
• Narrower gap on hot selling models without factory incentives

Check websites like Edmunds to see specific MSRP vs. invoice prices on particular vehicles. The spread indicates negotiating room.

Why is Knowing the Invoice Price Helpful?

Knowing the invoice price helps buyers because:

• It reveals the dealer's initial purchase cost for the vehicle.
• Buyers can better estimate the dealer's minimum profit margin.
• Negotiations anchor around invoice instead of higher MSRP.
• Large rebates below invoice signal great negotiation opportunity.
• Buyers seem informed by using invoice price knowledge.

While not the "true" cost, invoice establishes a lower limit to aim for in price talks.

Can You Buy Below Dealer Invoice Price?

Paying below the invoice price is possible in certain situations but unlikely for most deals:

• When large rebates and incentives from automakers reduce the invoice cost
• To meet sales quotas at the end of model years
• For less popular vehicles languishing on the lot
• Willingness depends on the individual dealer and salesperson

Aim just below invoice when rebates are available to start negotiations. Don't expect huge savings under invoice except on laggard models.

Does the Dealer Ever Lose Money by Selling at Invoice?

In most cases, the dealer does not lose money by selling at invoice price:

• Holdback - Automakers give dealers cash payments of 2-3% of MSRP. This compensates for sale prices at or below invoice.
• Incentives - Factoring in rebates and incentives, the true dealer cost is well under invoice already.
• Back-end profit - Dealers make money from financing, warranties, and service contracts.

When including all dealer incentives and costs, selling at invoice still allows marginal profit per car.

The Role of Car Features and Options in MSRP and Invoice Price

What is Holdback and How Does It Impact Negotiating?

Holdback is a payment automakers give dealers after each sale as a hedge against low-profit transactions. Key points:

• Holdback is typically 2-3% of the MSRP.
• It ensures the dealer has some cash flow buffer on each sale.
• Covers the difference between invoice and market sale prices.
• Not a huge windfall, but holdback of $500-$1000 per car does add up.
• Helps the dealer when discounting to match market prices.

Holdback allows dealers to sell near or even below invoice while preserving some net profit.

Can the Dealer Go Lower than Invoice?

Possibilities to go below invoice:

• Invoice minus holdback - This reaches the dealer's true net cost.
• Invoice minus incentives - Large rebates mean the dealer paid less than invoice.
• Using rebates in lieu of a lower price - Win-win to apply incentives as down payment.
• Willingness depends on salesperson's motivation and monthly targets.

Aim just below invoice and structure rebates favorably rather than demanding the lowest number.

What Other Dealer Cost Factors Matter?

While invoice approximates the dealer’s vehicle purchase price, other costs impact their bottom line:

• Personnel - Salesperson commissions and support staff.
• Facilities - Building costs, utilities, insurance.
• Advertising - Can be several hundred per vehicle sold.
• Maintenance - Vehicle prep and reconditioning.
• Interest - Floorplan financing fees to hold inventory.

All overhead costs must be covered from gross profit, typically 8-12% above invoice.

FAQs on MSRP and Invoice Pricing

Does invoice price include destination fees?

Yes, the invoice price captures the destination charge. Destination fees on new cars average around $1,000-$1,500.

Where can I find the invoice price for a new car?

Third party sites like Edmunds, TrueCar, and Kelly Blue Book publish dealer invoice prices and market sale data.

How much wiggle room exists between MSRP and invoice?

Mass market brands have 5-8% difference. Luxury cars are 3-5%. That spread signals negotiation opportunity.

Can I negotiate a great deal over email?

It's possible to negotiate some discount, but dealers prefer dealing in person. Email is best for initial quotes before going to the lot.

Does the salesperson know the invoice price and holdback?

Most do have access to invoice pricing details and use it to assess their bottom line. But they may feign ignorance during negotiation.

Key Takeaways on MSRP and Invoice Pricing

• MSRP is the full "sticker" price set by automakers
• Invoice is what the dealer pays the manufacturer, usually 3-10% below MSRP
• Aim below invoice when factoring incentives and rebates
• Holdback helps dealers absorb sale prices at/below invoice
• Use online resources to find invoice prices and fair market value ranges
• Leverage invoice knowledge politely when negotiating without relying fully on dealer cost

Approaching new car negotiations armed with invoice pricing intelligence helps buyers maximize savings while achieving a fair deal acceptable to both parties.

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