If you’re in the market for a new car, truck, minivan, or SUV, you’ve undoubtedly used the vehicle’s Manufacturer’s Suggested Retail Price (MSRP) as a comparative pricing data point. However, while automakers and dealers like to showcase a new car’s MSRP in advertising and marketing, the well-known four-letter acronym is only part of the complex and sometimes confusing new car pricing puzzle.
Read on for an explanation of what a new vehicle’s MSRP means, what other pricing fees shoppers should be aware of, and why some automakers charge more than the MSRP.
What Exactly Is “MSRP”?
Simply put, MSRP is the price the vehicle’s manufacturer suggests its retail dealers sell a new car for. You may also know it as the “list” or “sticker” (as in Monroney sticker) price. The MSRP is also the price that is predominantly used in the marketing and sales of the vehicle. But as we’ll discover, the MSRP is just the beginning in calculating the total cost of a new vehicle.
What Are the Other Charges You’ll Pay When Buying a New Car From a Dealer?
While the MSRP is a great starting point when comparing new vehicles, a host of charges must be considered for buyers to come to a final, apples-to-apples price comparison. Depending on what Canadian province you live in, here’s a list of potential additional costs:
Freight/Destination charges are the most common charges added to any new vehicle’s MSRP. The freight or destination cost is for transporting a vehicle to the dealer from the factory. The automaker sets the fee to the same amount, no matter how far their dealership is from the factory. Some, but not all, Canadian provinces and territories require automakers to include the freight/destination charge when they advertise the MSRP.
Pre-Delivery Inspection (PDI) is sometimes wrapped up with the freight/destination fee. Before delivering your new car, the dealer will ensure the vehicle is in complete working order and is safe to drive. This can vary but usually involves removing protective surfaces used during transport, and checking the paintwork, interior, and powertrain for any defects that may have been missed after leaving the factory.
Dealer Administration/Documentation fees are for registering the ownership in your name and putting license plates on the car. These are legitimate charges, but check the automaker’s website to ensure the fees are accurate. Some automakers limit how much their dealers can charge for dealer administration/documentation fees.
Provincial Dealer costs come from dealer regulatory organizations, like the Ontario Motor Vehicle Industry Council (OMVIC). Dealers are charged for every vehicle they sell or lease. Consumers will see the car’s Bill of Sale charge as the OMVIC fee or a Transaction Fee.
Tire Recycling fees are collected by provincial tire regulatory organizations to ensure that the rubber on your new vehicle will be managed responsibly (i.e., diverted from the landfill for recycling) at the end of its useful life.
Federal Air Conditioner taxes are fees the Canadian government that apply to all new vehicles with built-in air conditioning.
Sales Taxes can be seen on the vehicle’s Bill of Sale as GST or HST charges, depending on the province. In September 2022, the Canadian federal government introduced a new Luxury Tax, which applies to certain vehicles priced above $100,000 and is added to the total price before GST/HST is added. The Luxury Tax is not a flat rate and is complicated with various exceptions and specific criteria.
To give buyers an idea of how these additional fees can inflate a new vehicle’s MSRP, here are two breakdowns based on an economy car and a luxury vehicle if purchased with cash in Ontario*:
| MSRP | $16,998.00 |
|---|---|
| Provincial Dealer Fee | $10.00 |
| Tire Recycling Fee | $22.50 |
| Federal Air Conditioner Tax | $100.00 |
| Dealer Administration/Documentation Fee | $599.00 |
| Freight/Destination & PDI | $1,750.00 |
| Sub-total | $19,480.50 |
| Sales Taxes | $2,532.46 |
| Total Price | $22,012.96 |
| MSRP | $130,700.00 |
|---|---|
| Provincial Dealer Fee | $10.00 |
| Tire Recycling Fee | $35.00 |
| Federal Air Conditioner Tax | $100.00 |
| Max. Dealer Administration/Doc. Fee | $2,750.00 |
| Freight/Destination & PD | $2,850.00 |
| Luxury Tax | $7,287.00 |
| Sub-total | $143,732.00 |
| Sales Taxes | $18,685.16 |
| Total Price | $162,417.16 |
As you can read above, and not including any manufacturer or dealer incentives or discounts, the Mitsubishi subcompact hatchback’s final Price is 29.5 per cent higher than its MSRP, and the Porsche sports car sees a 24.5 per cent increase.
Why Some Dealers Charge More Than the MSRP
With severe shortages in manufacturing, shipping, and labour caused by the COVID-19 pandemic, it’s been a challenging few years for car buyers. Canada has no provincial restrictions on dealerships selling vehicles for more than MSRP. Still, some dealers will add a “market-adjustment fee” for a vehicle in high demand and limited supply. In our new Porsche 911 Carrera pricing sample, the “Maximum Dealer Administration/Documentation Fee” of $2,750 exemplifies this practice.
* Estimated pricing as of October 1, 2023.
