When Will New Car Prices Drop?

Quick Facts About Car Prices

New car prices began falling in recent months but 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 the last several 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 2023. Still, car prices have increased dramatically in the past three years. Read on for guidance if you want to purchase a vehicle. We can equip you with the best information from our experts. We dig deeper to answer concerns about car prices.

New Car Prices Remain Elevated

New vehicle average transaction prices for May 2024New vehicle average transaction prices for May 2024

Kelley Blue Book data shows that the average transaction price (ATP) for new cars was virtually unchanged at $48,389 in May compared to April. In this volume-weighted calculation reflecting market realities, high-volume vehicles like pickup trucks influence the calculation.

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 account for more than 41% of new vehicle sales in May, up from nearly 37% a year ago. 

Erin Keating, executive analyst for Cox Automotive, the parent company to Kelley Blue Book, says that shift suggests a market shift toward more affordable vehicles.  

“In May, we saw some positive news on the sales front,” Keating says. “A lot of those sales gains were juiced by higher incentives and lower prices, which is good news for consumers worrying about inflation. While there are a lot of vehicles transacting at very high prices, that doesn’t mean all new vehicles are unaffordable. There are still plenty of excellent, well-priced vehicles out there, particularly in the compact segments.”

Average transaction prices remain 17% higher than in May 2021, as the realities of the COVID-19 pandemic seemed never-ending. At that time, average transaction prices for new vehicles were $41,330.

In May, manufacturers increased vehicle incentives to an average of $3,200 to move cars.

What Drives New Car Prices

  1. Inventory availability
  2.  Manufacturer incentives
  3.  Dealer discounts
  4.  Trade-in vehicle value

New Car Inventory Update

A chart showing the average supply of new cars by brand as of May, 2024A chart showing the average supply of new cars by brand as of May, 2024

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. By the start of May, many brands’ inventories were 55% higher than a year ago. Some manufacturers need to heavily discount vehicles due to a supply glut. However, a handful of carmakers, like Toyota, Lexus, and Honda, can’t fill all car orders due to a lack of inventory. Days’ supply calculations include vehicles in dealer inventory, in transit, or in the pipeline.

Despite plentiful car inventory for most carmakers, stock issues continue for some carmakers and particular models.

Which Automakers Have the Most Vehicles?

Cox Automotive’s analysis of data from its vAuto new car dealership management software shows that Jaguar, Alfa Romeo, Ram, and Fiat sit among the brands with days’ supply at least twice the industry average. Shoppers can also find many vehicles in stock at Jeep, Lincoln, Dodge, and Chrysler. The data shows that previous model year vehicles weigh down inventory at Ram, Jeep, and Dodge. For example, the report says, “Dodge sits on nearly 48% of older inventory, some of the industry’s highest.” Also, it’s a great time to score a deal on a Ram. Their newest models began arriving, while 6% of older models remain in inventory.

Brands with inventory well below the industry average include Toyota, Lexus, Honda, Kia, Subaru, Porsche, Acura, and Land Rover.

RELATED: Is Now the Time to Buy, Sell, or Trade-In a Car?

Overall, the auto industry stocked 74 days’ supply of vehicles at the beginning of June. A month ago, inventory stood at 78 days’ supply, revised from 76 days. By comparison, automakers stocked an 86-day supply of vehicles in pre-pandemic times during the summer of 2019, meaning days’ supply is tighter by 14%.

Still, our experts remind us that as inventory keeps industry-average prices in check and drives incentives higher, consumers see more choices and dealers willing to deal. 

Vehicle Incentives Going Up

Carmakers continue to use incentives to attract buyers. According to Kelley Blue Book’s analysts, carmakers spent 6.7% of the average transaction price on incentives, or $3,200, meant to move vehicles. That’s about $100 more 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 up 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. Now, supply is bulking up again, partly because of higher interest rates on car loans.

Our analysis shows that the luxury car segment offered the most incentives last year. In April, luxury brand incentives, including for electric cars, dropped to 6%. That’s down from 7.4% the previous month.

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 many 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.

Toyota executives recently told the Cox Automotive Industry Insights team that its Toyota and Lexus brands are both running too lean, closing 2023 at about 13 days’ supply, by their measure.

Cox analysts say, “At the other end of the spectrum, pickup trucks, led by the Ram 1500, and SUVs, led by the Ford Explorer, had the highest inventory among the best-selling products in the US.”

For May, Ram offers aggressive cash incentives of up to $3,000 on new 2024 models to move inventory. So right now, you can lease a Ram 1500 with loyalty bonus cash of up to $3,000, while buying a new vehicle will mean $2,000 off.

Small Number of Vehicles Still Sell at Markup Prices

Cadillac markup from Florida example in March 2024Cadillac markup from Florida example in March 2024

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, in June, a Florida Cadillac dealership marked up a 2024 Cadillac Escalade Sport Platinum by $20,000 on its website (the dealer marked it up by $10,000 in May).

Shoppers must also be vigilant about vehicle fees, dealer or market adjustments, and extras, as seen below.

2025 BMW X5 pricing at a dealership recently.2025 BMW X5 pricing at a dealership recently.

[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

The yearly change in costs of owning, fueling, and insuring a car compared with inflation.The yearly change in costs of owning, fueling, and insuring a car compared with inflation.
The yearly change in costs of owning, fueling, and insuring a car compared with inflation.The yearly change in costs of owning, fueling, and insuring a car compared with inflation.

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 improving, but the second half of 2024 will look better for car shoppers. Additionally, any interest rate cut, if one comes, could help affordability.

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.