If you’re shopping certain brands, you’ll find a much better deal than you could a year ago.
Since 2020, reports far and wide have shown the astronomical jump in new car prices, with average transactions rising from around $36,000 to a gut-wrenching $48,808 this past June. With inflated prices and higher interest rates, consumers are spending more than ever on a new set of wheels, but Kelley Blue Book just published the latest set of data showing a far more positive trend for buyers over the past few months: New car prices are dropping year-over-year.
It’s not necessarily time to break out the champagne just yet, as prices did technically increase slightly in November. With average transaction prices (ATPs) hovering around $48,247 for November, though, that jump is less than 1% higher than the October figures, and an 8.9% drop on November 2022. That latest ATP represents the lowest level we’ve seen since April 2021, as prices continued to climb and have remained stubbornly high ever since.
Why are prices starting to trend downward?
In the light of altogether more positive news for consumers’ wallets, it’s worth discussing the circumstances that led to our current situation. Amid production woes and global supply chain concerns resulting from the COVID-19 pandemic, automakers drastically cut back incentive spending, taking money off the hood for prospective buyers and raising prices in tandem to maintain profit margins with fewer vehicles. While some companies formerly spent up to 10-11% of a vehicle’s ATP on incentives — you especially saw that with trucks, where the Big Three offered several thousand dollars off their new models — incentive spend retreated to just 2% of a vehicle’s ATP throughout most of 2022 and into 2023.
As KBB points out, the lower ATPs tend to result from incentive spend and discounts moving back to pre-2020 levels, rather than baseline retail prices actually dropping. In November 2023, buyers could see incentive packages totalling 5.2% of a car’s transaction price, a level more than double what it was a year ago. In practice, that means you can net a few thousand off something like a new Nissan Rogue by way of $2,500 cash incentives or far more attractive financing like 2.9% for 60 months. It’s still not the near-zero interest rates you could regularly find back in the 2010s, but at least it’s easier to find more discounts among the most popular models out there, at least for some automakers.
Among the 35 brands KBB analyzed, 16 showed price declines through November 2023 over a year ago. Tesla had the most precipitous drop, with new prices falling an astounding 20.5% from where they were in 2022. That tracks with the brand’s aggressive cuts throughout this year to drive sales volumes, much to the consternation of some investors who worry about the brand’s stock value when each quarterly earnings report misses targets and shows slimmer per-unit margins than in past years. It’s not just Tesla’s average prices that fell, though, as Buick dropped 6.4%, Land Rover dropped 6% and Nissan dropped 5.7%.
Luxury car prices also declined by 7.5% year-over-year, thanks to greater inventory and higher incentives. Both those factors drove huge 8.4% year-over-year sales growth, to the point where luxury market share actually rose above 20% in the U.S. for the first time since KBB started collecting data. The average price someone paid for a luxury car was $63,235 in November 2023.
Some automakers are trending in the other direction, however. Stellantis actually shows a 7.8% increase in prices over a year ago (and 2.9% in November), while Mazda increased 6.4% and Hyundai rose 4.1%. It’s worth noting that Volkswagen saw a marked 6.1% jump in ATPs in November 2023 against the same month last year.
While virtually every automaker has some holiday incentive event happening right now, the jump in ATPs tends to track with weaker incentives, as you’d reasonably expect. “Non-luxury incentives are currently seen as low by historical standards,” KBB’s report points out, “despite being at their highest point since September 2021. For comparison, non-luxury incentive packages averages 10.5% of ATP in November 2019.”
EV prices are also falling
One of the most widely discussed and contentious points in the industry is when electric cars will reach price parity with internal combustion vehicles. According to this data, we’re closer to seeing that actually happen, thanks to plummeting EV prices as the market gets larger, inventory levels increase and overall demand slows down. Electric car market share is still on the rise, though the adoption rate may plateau in early 2024 as automakers cut back production. Ford, for example, cut its F-150 Lightning production in half amid relatively weak take rates after early adopters bought into the brand’s first all-electric truck.
The average price consumers paid for a new EV in November was $52,345. That’s up slightly from $51,715 in October, but incentives are also among their highest points and well above the industry average. Last month, electric car incentives totaled 8.9% of the average transaction price, up from just 2% a year ago, thanks to automakers either dropping their MSRPs, offering more cash on the hood to entice buyers or leveraging the $7,500 federal EV tax credit along with state incentives.
“A year ago, the EV premium was more than 30%,” said Cox Automotive’s director of strategic planning Stephanie Valdex-Streaty. “Today, it’s less than 10%.” In other words, looking at average transaction prices industry-wide, EVs are only 8.5% more expensive than your average gasoline vehicle. That said, there are plenty of variables in play, including the red-hot luxury car market skewing ICE vehicles higher against EVs.
If pricing for new electric cars continues to fall faster than ICE cars, though, we may reach parity — where an EV costs the same as a gas-powered car — in the near future.
If you’re really looking to save some cash, though, you can buck the “ATP” trend altogether by buying way more affordable used cars at auction:
