When margins matter: Five things auto pricing teams need to consider beyond MSRP

Automotive pricing teams are contending with tighter margins, fluctuating costs, and affordability-driven buyer shifts. MSRP—Manufacturer’s Suggested Retail Price—remains a common benchmark, but it’s increasingly disconnected from actual sales prices.

In April 2025, nearly half of US new vehicles were advertised below MSRP, nearly double the share than in 2022. Dealer advertised discounts peaked at $3,603 in September 2024, almost 7% off MSRP, and remain high across segments.

Static pricing is no longer sufficient. Pricing strategies must now incorporate competitive activity, cost structures, financing dynamics, and inventory movement.

The difference between MSRP and list price continues to widen (Figure 1). OEMs frequently adjust pricing mid-cycle by region, trim, or financing terms, often without changing the published MSRP. For example, in April 2025, the average MSRP across U.S. advertised inventory was $51,828, while the average list price was $48,453. This represents a $3,375 gap, or 6.5%.

Pricing volatility has been building for over a year. The average MSRP of advertised inventory rose sharply in 2023, peaking at $53,428 in July of that year, before moderating through early 2024.

Advertised discounts, meanwhile, have steadily increased, peaking in September 2024 at $3,603 or 6.9% below MSRP (Figure 2). This growing divergence highlights the need for near-real-time tracking of list prices and discounts to reflect market shifts not captured in MSRP trends alone.

Supply chain volatility, electrification, and trade-related expenses are reshaping build costs. But raising prices isn't always an option, as brand positioning, affordability limits, and competitive pressure impose real constraints.

In April 2025, advertised full-size pickups had an average MSRP over $63,000, but discounts exceeded $6,300. This is nearly 10% below the MSRP. To maintain healthy profit margins in car sales, pricing teams are increasingly using simulation tools that reflect module-level cost changes and potential price thresholds.

A strong vehicle pricing strategy anticipates shifts rather than reacting. With supplier delays, tariffs, and rising material costs now prevalent, modeling tools help teams avoid reactive incentive adjustments that erode margins.

Dealers are often the first to raise flags about pricing misalignment, especially when vehicles linger on lots or sales targets loom. While they may apply selective discounts from their own margins, broader incentive actions typically come from OEMs in response to dealer feedback and customer demand.

In April 2025, the advertised discount for top-selling vehicle segments ranged widely. Compact utilities showed moderate discounting around 6%, while pickups and upper-midsize utilities approached or exceeded 10%.

Advertised vehicle prices often reflect a mix of OEM incentives and dealer-applied discounts—sometimes from the dealer’s own margin or repurposed funds. These listings can hint at local inventory strain, competitive dynamics, or demand shifts. When interpreted in context, they help pricing teams spot margin risk and differentiate between strategic promotions and reactive discounting.

Incentives also shape pricing but vary widely across deal types. Their structures such as APR support, loyalty bonuses, EV credits, or volume targets can obscure the true value delivered at the point of sale. That’s why pricing analytics is essential: to decode this complexity and assess real margin performance.

Lease programs highlight how OEMs actively manage this complexity. Rather than reducing MSRP, they preserve list pricing by adjusting residual values, applying capitalized cost reduction (CCR) incentives — cash contributions that directly lower the lease cost — or subsidizing lease rates to make monthly payments more attractive.  These back-end tools help OEMs support dealers in moving inventory and protecting margins without formal price changes, enabling quicker responses to aging stock or regional demand shifts.

Roughly 59% of U.S. new vehicle buyers took out a loan and 25.0% leased in early 2024, meaning nearly 85% financed their purchase. Because the vast majority of buyers are focused on financing, monthly affordability—not just the total vehicle price—plays a central role in determining which trims sell quickly and which remain on dealer lots.

For pricing teams, this means focusing less on adjusting MSRP and more on optimizing monthly payment structures—through tools like residual support or rate subvention—especially in higher-interest environments.

In February 2025, the average base MSRP of vehicles selected for lease, as reported by AutoCreditInsight, was $46,528—more than $2,400 higher than the average base MSRP of vehicles selected for loan financing. This doesn’t mean that MSRP varies by deal type, but rather that consumers who lease tend to choose higher-priced vehicles, often in the luxury segment. This trend is partly driven by leasing’s affordability advantages for higher-MSRP models that retain their value well. It’s also important to note that these figures represent the MSRP of the base model, not the MSRP as built and advertised (with options) for each individual vehicle. The gap underscores how leasing continues to serve as a tool for OEMs and dealers to make higher-priced vehicles accessible to payment-sensitive buyers.

Inventory planning plays a direct role in automotive pricing outcomes. In April 2025, as used vehicle prices rose, dealers responded by increasing new vehicle orders in anticipation of a shift in consumer demand toward new vehicles. But vehicles built under outdated cost assumptions quickly became mispriced in the current market.

As production costs, consumer preferences, and market dynamics evolved, these vehicles often ended up either overpriced—making them harder to sell without incentives—or underpriced, resulting in lost revenue opportunities. This disconnect forced dealers to adjust pricing strategies on the fly, resorting to discounts or promotions to move inventory and maintain profitability.

Legacy inventory, especially in high-MSRP segments like full-size pickups, required deeper discounts to remain competitive. OEMs now segment inventory by build date or cost structure to ensure accurate pricing.

Integrated automotive revenue management systems allow pricing teams to align incentives with lease return timing, conquest targeting, and regional supply conditions. Without this coordination, inventory momentum can lead to steep markdowns and margin erosion.