MSRP Defined: Manufacturers Suggested Retail Price
MSRP Stands for Manufacturers Suggested Retail Price.
The MSRP, or Manufacturers Suggested Retail Price, is the car makers suggested selling price of the car. There are several business, production and market factors that go into car makers deciding the MSRP of the cars they are selling: Design and engineering, technology, business costs, cost of materials and labor, just to name a few of the basics. Beyond that, manufacturers suggested retail price is derived from marketing, competition and demographics. Who are they selling the car to and how much do they expect to pay for it? While an economy car like a Ford Fiesta is being targeted for consumers on a tight budget looking for savings and value, the BMW 335iX is being marketed for those who want luxury, performance and features. One might have an MSRP of $15,000 and the other $55,000. So, how does this affect a car lease calculation?
The MSRP Component of a Car Lease
Unlike some of the other car leasing components, MSRP is a fixed number. The MSRP cannot be changed by the dealer or bank who is selling the car. The MSRP is where a car lease calculation begins.. A higher MSRP generally means a higher loan payment or car lease payment, but not always. Luxury cars, which have a very high MSRP, for example, often have a very high resale value. Because the Resale or Residual Value is based on the Manufacturers Suggested Retail Price, a more expensive car doesn’t always mean a higher lease payment. A high resale value means we pay for less depreciation on the lease. Obviously, if you’re comparing two cars with an MSRP difference of thousands of dollars, a higher resale value on the more expensive one is not likely to yield a lower lease payment. If all things were equal, a higher MSRP would most definitely mean a higher lease payment, but not all things are equal when it comes to leasing. The Manufacturers Suggested Retail Price may be where the car lease deal begins, but certainly not where it ends. A high MSRP also means there is more room for the dealer to negotiate the sales price or capitalized cost of the car. There are certain cars which don’t lease well because they have a suggested list price that is too low. Cars with low MSRP have less room for negotiating the final selling price. Also, they tend to have lower resale values.
There are some cases when you can save a few dollars on a lease payment by choosing a car with a slightly higher MSRP.
If a vehicle has destination fees and packages/options, should these be included in the MSRP for the LVR calculation or is it only the Base MSRP?
The destination, packages, and options are always included in the MSRP. This is what it looks like on the current Honda Civic Hatchback, for instance:
Offer excludes accessories and premium paint color. Closed-end lease for 2021 Civic Hatchback Continuously Variable Transmission SPORT available through 03/01/2021, to approved lessees by Honda Financial Services in select states only. MSRP $25,095.00 (includes destination; excludes tax, title, license, registration, options, insurance). Actual net capitalized cost $22,138.28. Total monthly payments $7,164.00. Option to purchase at lease end $16,060.80. Lessee responsible for maintenance, excessive wear/tear and up to 20¢/mi. over 10,000 miles/year. Dealer participation may affect actual payment. Dealer sets actual prices. See participating dealers for details.