Buying a car is a teenager’s dream. It’s the picture-perfect scene of a salesman dropping the shining keys of a brand new car into the hand of an eager teen, who proceeds to drive off into the sunset flashing a smile to the camera. Yet, purchasing a car can come across as an intimidating experience. What even is MSRP? What are accessories? Why am I paying more than the price listed on the website? This article will explain the basics of the car-buying world to a teenager.

The first important note to keep is that cars do not go directly from the hands (or assembly line robot arms) of the manufacturer to the buyer. Rather, there exists a middleman — the car dealer. Vehicles may be manufactured anywhere in the US in a factory (my car, for instance, was assembled in Illinois), but these new products are shipped out to various dealerships that specialize in selling that particular car brand. It is the dealerships, then, that are tasked with attracting customers and handling the paperwork for transferring ownership.

On a side note, Tesla, the rising electric car manufacturer, skips the dealership completely. Instead, purchasing a car can be easily done online over the Tesla website and picked up or delivered to the customer. For some who find walking into a dealership an adverse experience, Tesla’s shopping method may be more preferable. 

Would you purchase a car before taking a short trip behind the wheel? The answer for many would be a negative, as aspiring car shoppers typically want to have a feel for a prospective vehicle. As such, dealers often offer short test drives around the shopping center when customers walk in. Tesla also provides test drives at select local Tesla stores, although those may need an appointment. In most cases, for both Tesla stores and conventional dealerships, a driver’s license and proof of car insurance is needed before taking a spin. 

As a car leaves the factory, manufacturers will slap on a label called the MSRP. MSRP is an acronym for the manufacturer’s suggested retail price. The name tells the whole story — the MSRP is simply a suggestion from the manufacturer to the dealerships about what price the car should be sold to customers for. However, the MSRP is neither a price floor nor a price ceiling. It is still a suggestion, and dealers will typically sell cars above or below this price (usually above).

Instead, dealers usually take this MSRP and may make adjustments to the price based on economic factors like supply or demand. This is called a markup (the price is raised) or markdown (the price is lowered). In accordance with basic rules of economics, a shorter supply and a higher demand means that there will be a markup; a greater supply and a lower demand signals a markdown. 

In fact, these current circumstances that demand a markup are occurring right now with the pandemic. With the shutdown of factories manufacturing computer chips, an integral part of car systems, there are currently not enough computer chips available to produce the same volume of cars that was possible to produce before the pandemic, resulting in a shortage of new vehicles produced. In turn, dealerships receive fewer cars from the factories and languish in a shorter supply. Mr. Lejano (Staff), who teaches macroeconomics on campus, explains that “when the quantity demanded of something is greater than the quantity supplied, producers will raise their prices.” He notes, “that’s what is happening in this case.”

Some more important lingo in the auto world is the car make, model, and the trim. Car make is the car’s manufacturer — essentially the car’s brand. Car model is the specific type of car produced by the manufacturer. And lastly, the trim is the different versions of the model. 

Toyota, for instance, is a car make. The Toyota Corolla is a car model. The Corolla’s most basic trim is the Corolla L, which boasts a lower MSRP than the higher XLE trim. However, the XLE trim, though brandishing a higher MSRP, contains a number of more advanced installed features compared to the L trim: a sunroof, blind-spot monitors, and heated front seats, for example.

MSRP is most often the number listed on websites, ad flyers, and billboards, but the dollar sign doesn’t tell the whole story. Instead, there are often a number of add-ons and extra fees on top of the markup. Accessories are add-ons that can be installed into the vehicle to provide an extra feature, although these will cost extra. 

Wheel locks, for instance, are an installed accessory for many Honda vehicles which provide security against tire theft. However, accessories can be hit-or-miss for many buyers. In the case of wheel locks, drivers who live in areas with low tire theft rates may find the feature unnecessary. Adding or removing accessories from the car and the bill will require negotiation with a salesperson.

Dealerships also take on the work of handling registration procedures for new vehicles with the DMV. However, car registration necessitates a few fees — namely, taxes and the fee to register a new vehicle. As a result, these registration fees are tacked onto the bill as well. A good rule of thumb for estimating the registration fees is to take ten percent of the dealer’s asking price (MSRP + accessories + markup). However, the actual registration fees are usually calculated by the dealer. Taxes on the car will vary from each area, contributing to why dealers will often ask for your zip code. 

All of these factors amount to what is called the out-the-door price — basically the full price you pay for the car. However, given the numerous different factors and changeable markup prices applied by different dealers, the best method of shopping for cars is to ask around the prices of multiple dealerships and consider for yourself which center offers the best deals. With the right balance of negotiation and compromise, driving a brand new car into the sunset might soon be a reality.