MSRP isn’t really a fictional number in other industries, but I’m sure it could roll into the tractor world in a similar fashion.
Take boats or cars, for instance.
Let’s use dumb, round numbers.
MSRP is $50K
Dealer cost is 20% less, meaning dealer paid $40K.
Let’s say dealer needs 10% margin on MSRP to make it viable.
That means dealer can sell for $45K and still be happy.
While the consumer may say he got a smoking deal because he got $5K off, the dealer was ready to let you add $5K in accessories to the loan without any lender challenge.
A good friend is in the boat manufacturing business, and they have increased MSRP on all their regular models due to dealer pressure. Just so the dealer can add more extras to the loan, and still make their necessary margin (which is technically less than the previous due to inflated MSRP).
To keep the numbers simple, last year’s boat was $70K. We’re not even going to mess with the typical 2-2.5% annual cost increases that that industry sees.
This year, the same boat is $80K. Inflated MSRP, only to allow more add-ons to the boat under same loan. If a guy doesn’t want any add-ons, he may be able to get the boat for well under MSRP, and think he got a smoking deal!
Dealer is still paying the same for the boat (typical 2-2.5% escalation excluded). Manufacturer is still seeing the exact same margin on sale to dealer. Dealer only has more room to negotiate with retail consumer between asking price and what they can really do.
Shoot. A fella I work with bought a new Ram Mega-Cab diesel a few months ago. Got such a great deal that he was able to wrap a 6” lift, power steps, wheels, and 37” tires into the loan! He’s happy as all get out! I just laugh inside, because he will buy three more sets of tires before the first set is paid for...
It is simply the economic world we live in.
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