When Will New Car Prices Drop?
Quick Facts About Car Prices
A cyberattack that slowed down dealership sales and reporting for several weeks in June didn’t stop car buyers from purchasing new vehicles. However, even as new car prices fell in recent months, they now appear stuck in neutral even as consumers see plentiful dealer inventory and better buying incentives. Many signs point to car prices dropping in the months ahead, but it depends on many factors.
In recent years, car shoppers have become accustomed to paying more than the manufacturer’s suggested retail price (MSRP). They watched car prices rise with no apparent end in sight. The situation left many shoppers scratching their heads, and the question our experts hear most is, “When will new car prices drop?”
New-vehicle price inflation all but disappeared by the end of last year. Still, car prices have increased dramatically in the past three years. Read on for guidance if you want to purchase a vehicle. We provide you with the best information from our experts. We dig deeper to answer concerns about car prices.
New Car Prices Remain Elevated
Kelley Blue Book data shows that the average transaction price (ATP) for new cars held steady at $48,644 in June, compared with a month earlier. It was $266 higher than May and lower by $307 when compared to a year ago. In this volume-weighted calculation reflecting market realities, high-volume vehicles like pickup trucks influence the number.
For example, the report shows that the Ford F-Series truck, the best-selling vehicle in the U.S. in May, posted an average transaction price of nearly $68,000. Tesla’s average transaction price increased to $57,369 after the release of its Cybertruck. On the other hand, five of the top 10 most popular vehicles, like the Toyota RAV4 and Honda CR-V, sold at average transaction prices below $40,000. Vehicles selling for less than $40,000 accounted for 40% of new vehicle sales in June.
Erin Keating, executive analyst for Cox Automotive, the parent company to Kelley Blue Book, says carmakers appear to be holding the line on buying incentives.
“As we head into the back half of the year, we are seeing that automakers are showing real discipline on pricing,” Keating says. “Even brands holding onto more days’ supply, like many Stellantis brands, are keeping incentive spend in check.”
Stellantis is the parent company of car manufacturers like Chrysler, Dodge, Jeep, Ram, and Alfa Romeo.
Overall, average transaction prices remain 13% higher than in June 2021, as the realities of the COVID-19 pandemic seemed never-ending. At that time, average transaction prices for new vehicles were $42,258.
In June, manufacturers’ vehicle incentives to move cars dipped lower to an average of $3,100.
What Drives New Car Prices
- Inventory availability
- Manufacturer incentives
- Dealer discounts
- Trade-in vehicle value
New Car Inventory Update
Dealerships measure their stock of new cars to sell in a measurement called “days of inventory,” or how long it would take them to sell out of new vehicles at today’s sales pace if the automaker stopped building new ones.
June inventory data show that the cyberattack that affected Illinois-based CDK Global and 15,000 dealerships, impacted reporting during the second half of June. As a result, the Cox Automotive vAuto Live Market View reports the attack skewed the days’ supply of new vehicles at the beginning of July to 116 days. It’s an “extremely abnormal” data point and among the highest on record. It’s 110% higher year-over-year.
Additionally, extreme weather and power disruptions could also factor in sales and inventory, including in Houston, one of the nation’s largest markets for car sales. Our experts say data in July and possibly August may be a more realistic measure.
Until then, preliminary data in June show Toyota, Lexus, and Honda have fewer cars to sell compared with Stellantis’ brands like Alfa Romeo, Jeep, and Ram, where you may find more deals when car shopping.
Vehicle Incentives Dip Lower
Carmakers continue to use incentives to attract buyers, though fewer of them in June. According to Kelley Blue Book’s analysts, carmakers spent 6.4% of the average transaction price on incentives, or $3,100, meant to move vehicles. That’s about $100 less than last month. Still, that figure is low compared to fall 2020, when incentive levels were about 20% of the average transaction price.
When automakers build an oversupply of cars, they discount the vehicles to get them off dealer lots. For several years, carmakers and dealerships showed no glut of cars to sell and barely offered discounts.
Still, many carmakers offered fewer incentives in June. Despite higher inventory levels at the start of June at some dealerships, Land Rover, Porsche, and Toyota had fewer deals to offer. On the other hand, Audi, Infiniti, Nissan, and VW, made generous offers.
Shop Around for the Best Offer on Your Trade-In
Trade-in value is another factor driving car prices. A lack of used vehicle stock has kept prices higher, giving credence to the idea that buying a new vehicle is cheaper than purchasing a recent model used one. As a result, it’s a great time to trade in your car.
Dealers value your trade-in partly based on what they need in stock. Therefore, they’re more likely to offer an excellent deal to buyers on a car fewer people are looking for currently. In other words, a car shopper trading a 2018 Honda Civic for something else will be much happier with the trade-in appraisal than one with a 2021 Jeep Grand Cherokee.
Car buyers should prepare to shop their trade-in around. It’s slightly more complicated to pull off, but selling your old vehicle to one dealership and buying your new car from a different one may make sense if the final invoice numbers work out in your favor. Use the Kelley Blue Book Instant Cash Offer tool to shop your trade-in vehicle at nearby dealerships. When you let the deals come to you, selecting the best trade-in offer for your situation is easier. Remember, you can always negotiate the offer, and pitting one offer against the next is not unheard of.
It’s a Buyer’s Market for New Cars
The new car landscape is a buyer’s market. Shoppers heading out to purchase a new vehicle will find decent offers and incentives to help lower the price. For some brands and dealerships like Toyota, Honda, and Lexus, shoppers should expect to hunt and pay more for tougher-to-find models.
At the start of July, several car dealers offered 0% financing deals on car loans. For example, qualified car buyers with good credit can secure a 2024 Nissan Altima (starts at $27,510) or a 2024 Mazda CX-30 (starts at $26,415) for 0% financing for 36 months. Also, Nissan offers a $1,250 cash discount. Dealerships are making way for 2025 models, offering deeper discounts on select cars. Some dealers may also be willing to offer additional discounts, especially on outgoing 2024 models.
Make sure to shop around to find the best deal on the car you want to purchase.
Small Number of Vehicles Still Sell at Markup Prices
The days of paying more than MSRP are mostly behind us. Most carmakers and dealers now offer ample inventory and provide incentives that lower car prices below MSRP.
Still, a few vehicles remain in short supply, and dealerships continue to mark up their prices. For example, one Cadillac dealership recently marked up a hard-to-find 2024 Cadillac Escalade Sport Platinum by $20,000 on its website. Shoppers must also be vigilant about vehicle fees, dealer or market adjustments, and extras, as seen below.
[Editor’s Note: We recently saw a BMW dealership adding a market adjustment of $5,000 for the 2025 BMW X5 in Brooklyn Grey with the xDrive40i trim. The extras on the bill also showed antimicrobial protection, complimentary car washes, priority concierge service, ceramic tint window film, and enhanced window protection for an extra $2,500 and another $3,000 for paint protection film. Before you shop, understand your total and reverse course if you don’t want these expensive extras. Many of these extras are pure markups or profit centers for the dealership. Before you sign anything, it’s wise to ask the salesperson to remove those fees if they want to sell you the car.]
Read our article How to Avoid Dealer Markups in 2024: Buyer Beware to learn how to spot and avoid them.
The Higher Costs of Car Insurance
According to the Bureau of Labor Statistics, car insurance costs jumped to about 20% in May compared with a year earlier. Bankrate says car insurance averages about $2,300 a year for full coverage. Before you seal the deal and sign anything for a new vehicle, compare quotes for car insurance.
What to Expect: Looking Ahead
But what if you desperately want a popular car that’s in low supply? Now is the moment to exercise your patience and wait or choose a different model. Last year’s Federal Reserve interest rate hikes were aimed to rein in inflation but still make it hard for many consumers to afford cars if they need a loan. According to the most recent Cox Automotive research, the typical new car loan interest rate was an average of about 9.7%. Vehicle affordability is still difficult for many shoppers, but the second half of 2024 could look better for car shoppers if interest rate get cut.
For now, car shoppers must remain flexible and look for deals. The best deal may not be for the car you thought you would buy.
Editor’s Note: This article has been updated for accuracy since it was initially published. Sean Tucker contributed to this report.
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