When Will New Car Prices Drop?
Quick Facts About Car Prices
Car shoppers may finally get some relief as the Federal Reserve pulled the lever on the first interest rate drop since March 2020. Eventually, the rate drop will help dent car loan interest rates, though not soon enough for shoppers looking to take out auto loans right now. At half a percentage point, the Fed’s move will take several months to reach borrowers who finance a car. Still, incentives to entice shoppers to buy vehicles continue to climb. Those factors can help those in the market right now.
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 the best information from our experts and dig deeper to answer concerns about car prices.
New Car Prices Fluctuating
Average transaction prices, which climbed throughout the last several years, began dropping in 2024 but have continued to fluctuate since the beginning of this year. In August, Kelley Blue Book data show average transaction prices were $47,870, slightly lower than last year’s $48,126.
“In our latest dealer survey, the message about price pressure was very clear,” said Erin Keating, executive analyst at Cox Automotive, the parent company to Kelley Blue Book. “Dealers are telling us the sales environment is humming along at a muted pace, and there is growing pressure to lower prices.”
This volume-weighted calculation reflects all the car market realities, including high-volume vehicles like pricey pickup trucks influencing the number. For example, the report shows that full-sized pickups posted an average transaction price of about $65,500.
Additionally, electric vehicles posted average transaction prices of $56,575 in August. The nation’s largest electric vehicle (EV) seller, Tesla, saw its average transaction price remain about the same at $59,138 compared to July. Still, Tesla prices are higher year-over-year by nearly 11%. That’s likely due to its Cybertruck, which has prices starting at $101,985, including the destination fee of $1,995.
For shoppers preferring less expensive vehicles like compact SUVs (the market’s most popular segment by volume), August’s average transaction price was $36,506.
Overall, average transaction prices remain more than 10% higher than in August 2021, when the realities of the COVID-19 pandemic seemed never-ending. At that time, average transaction prices for new vehicles were $43,351.
In August, manufacturers added more vehicle incentives, an average of $3,447, to help move 2024 models and make way for 2025 models.
What Drives New Car Prices
- Inventory availability
- Manufacturer incentives
- Dealer discounts
- Trade-in vehicle value
New Car Inventory Update
August inventory data is more stable after two months of volatility following June’s cyberattack affecting Illinois-based CDK Global and 15,000 dealerships. As a result, the Cox Automotive vAuto Live Market View went from showing an abnormal 116-day supply of inventory at the beginning of July to 68 days at the beginning of August to 77 days at the beginning of September.
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.
About 25% of the vehicles in a dealers’ showroom are now 2025 models. The other 75% of vehicles must be sold before the end of the year. Stellantis, the parent company to the Alfa Romeo, Dodge, Chrysler, Jeep, and Ram brands, increased its incentives to 7.8% of the average transaction price in August from 5.7% in July. Data show that dealers in multiple markets still need to sell 2023 model-year vehicles on their lots. According to the vAuto data, Dodge supply of vehicles is more than twice that of the national average for days’ supply of inventory.
Vehicle Incentives Get a Bump
Carmakers boosted their incentives to lure buyers in August. According to Kelley Blue Book’s analysts, carmakers spent 7.2% of the average transaction price, or $3,447, on incentives meant to move vehicles. That’s the highest amount in over three years and about $64 more than July. New EVs also saw more significant and better incentives of over 13.3% 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.
Stellantis increased its incentives to 7.8% of the average transaction price in August from 5.7% in July. Last month, electric car incentives averaged 13.3% of the average transaction price. Dealerships offered higher discounts on Buick, Lincoln, and Mitsubishi vehicles. Nissan and Infiniti also offered decent incentives in August.
“In the face of a sluggish sales pace – 15.1 million in August – more dealers are pulling the only lever they have: higher incentives,” added Keating. “This shift to a buyers’ market is good news for consumers but certainly impacts dealer profitability. Automakers are coming to the table with more incentives, but credit remains tight, putting more pressure on dealers to get creative with additional discounts and financing, affecting the bottom line.”
Porsche, Land Rover, Toyota, and Lexus offered the lowest incentives last month compared with other brands.
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 bigger incentives, and qualified buyers with stellar credit will discover some decent low-interest-rate offers and lease deals. We’ve also seen some dealerships offering additional discounts to move 2024 models as the influx of 2025 models begins.
Several carmakers continue to offer 0% financing deals on vehicle loans. For example, qualified car buyers with good credit can secure a 2024 Subaru Solterra (starting at $46,340) or a 2024 Mazda CX-30 (starting at $26,415) for 0% financing for 72 months and 36 months, respectively.
Be 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 the 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 mark up their prices. On Markups.org, which allows consumers to report and send in their photos of markups seen at dealerships across the United States, several recent dealership market adjustments were seen in Lima, Ohio (a 2024 Toyota Sienna AWD with a $3,000 markup), Texas (a 2024 Ford F-150 Raptor R marked up $35,000), and California (a 2024 Toyota Land Cruiser with a markup of $14,995).
Earlier this summer, 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 at this Florida BMW dealership.
[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.
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.
The Higher Costs of Car Insurance
According to the Bureau of Labor Statistics, car insurance costs were still high in August at about 16.5% over 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
The Federal Reserve dropped its best news all year. The nation’s central bank lowered its key interest rate by half a percentage point to curb an economic slowdown.
Relief could bring at least a little cheer before the end of the year for auto loan interest rates. Rate cuts from the Federal Reserve take time to trickle through the economic system.
Cox Automotive Chief Economist Jonathan Smoke said that even with a rate cut today, “it is not likely that auto loan rates will decline much before year’s end.” The average monthly car payment has come down. Cox Automotive is the parent company to Kelley Blue Book.
For shoppers, car payments peaked at $795 in December 2022, according to Cox Automotive data. Last month, the average American car payment fell to $737. High interest rates made up some of that expense. The car loan interest rates make it hard for many consumers to afford a vehicle if they need to finance the purchase. According to the most recent Cox Automotive research, the typical new car loan interest rate was an average of 9.58% for new vehicles in August. For those buying used vehicles, rates were 13.92%.
What to Do If You Need a Car Now?
For now, you can either sit back and wait or, if you desperately need a car, shop around and check for manufacturer deals like cash back and low-to-zero interest rate offers. If you can wait, more relief could come if the Fed cuts the rate further.
Buyers looking for a used car should weigh costs carefully if they must finance right now. In some cases, newer used vehicles cost the same as new ones. Also, you can try to negotiate a great deal on a left-over 2024 model deal because dealers want to clear their lots before the end of the year.
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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