Quick Facts About Car Prices
- New car prices rose higher last month and remain nearly $11,000 higher than five years ago, before the pandemic.
- Shoppers might find great deals on offerings from Jaguar, Lincoln, Dodge, Buick, Mini, and other overstocked vehicles.
- Manufacturer incentives held steady at $3,958 as consumers hurried to pick up the end-of-year deals.
Just when it seems like new car prices are dropping, with lenders enticing shoppers with better interest rate offers and other manufacturer deals, the average vehicle transaction jumps up, ending December close to the all-time high in the same month of 2022.
“It was a December to remember, in terms of both sales volumes and prices,” said Executive Analyst Erin Keating with Cox Automotive, the parent company to Kelley Blue Book. “As we reported just after the election, consumer sentiment and confidence have been on the rise. Vehicles, especially luxury vehicles, are typically an emotional purchase, and when consumers are optimistic, they go shopping. Rates dipped for a short bit late in 2024, discounts were higher, and the glass was half full. No wonder we saw the lift in both prices and volume.”
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. Even as prices started to drop, they now appear stuck in neutral. 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 Jump Higher
Kelley Blue Book data shows that average transaction prices were $49,740 in December. Incentives to attract shoppers to new vehicles held steady at 8%, or about $3,958. One bright spot: incentive spending ended December 44% higher than in the same month two years ago.
Overall, average transaction prices were nearly $11,000 higher than in December 2019, before the COVID-19 pandemic. At that time, the average transaction price for new vehicles was $38,948.
The volume-weighted average transaction 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 $64,261.
Additionally, electric vehicles posted average transaction prices of $55,544 in December. The nation’s largest electric vehicle (EV) seller, Tesla, saw its average transaction price increase 10.5% year-over-year to $55,258. Perhaps worried about losing out on federal tax incentives, consumers rushed to grab available incentives. Electric car incentives averaged more than $6,700 throughout 2024.
What Drives New Car Prices
- Inventory availability
- Manufacturer incentives
- Dealer discounts
- Trade-in vehicle value
New Car Inventory Update
According to the Cox Automotive vAuto Live Market View, inventory fell to 78 days at the start of January due to robust car sales in December.
Dealers’ showrooms started filling up with 2025 models earlier this fall. By December, higher inventory levels were met with declining interest rates, improving consumer sentiment, and a dearth of discounts to unload the outgoing models, helping to reduce inventory by 8.5% at the start of this month.
Dealerships track their stock of new vehicles to sell using 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.
It’s a Buyer’s Market for New Cars
The new car landscape is a buyer’s market, especially for electric vehicles, as an uncertain future awaits with the existing federal tax incentives under the new Presidential administration.
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, especially on electric vehicles. We’ve also seen some dealerships offering additional discounts to move 2024 models as the influx of 2025 models begins.
The number of carmakers offering 0% financing and other deals is rising. For example, qualified car buyers with good credit can secure 0% deals on a 2025 Mazda CX-30 for 36 months or a 2024 Kia EV6 for 72 months.
Be sure to shop around to find the best deal on the car you want to purchase.
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 those 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 other is not unheard of.
The Higher Costs of Car Insurance
According to the Bureau of Labor Statistics, car insurance costs were still high in December at 11.3% over a year earlier. Bankrate says car insurance averages about $2,638 a year for full coverage. Full coverage, also called comprehensive car insurance, covers natural disasters like wildfires, hurricanes, and accidents. Before you seal the deal and sign anything for a new vehicle, compare quotes for car insurance.
[Editor’s note: I’ve heard stories about skyrocketing car insurance costs and that one driver in Florida bought a used vehicle and the insurance for it cost more than what the person paid for the vehicle itself. As a result, it’s more important than ever to shop around for car insurance using the vehicle identification number (VIN) for the vehicle you want to buy to get a solid estimate before you put any money down or pay for the car.]
What to Expect: Looking Ahead
Economists forecast two rate cuts in 2025, after three last year. Rate cuts from the Federal Reserve take time to trickle through the economic system.
According to economist Jonathan Smoke of Cox Automotive, the Federal Reserve’s change in rates reduces monthly payments by approximately 3%.
“Cox Automotive is optimistic about 2025, with plenty of reasons to believe it will be the best year since 2019,” said Smoke. “The market is gaining momentum, economic fundamentals are improving, and consumer sentiment is pointing in the right direction. We are ready for what 2025 might bring.”
However, uncertainty looms with vehicle affordability issues. According to Smoke, improvements may come in 2025.
“Loan rates could move even lower without any further changes by the Fed if the economy stabilizes as expected and loan performance improves, suggesting Fed policy will likely be less important in 2025 than in recent years. New-vehicle inventory volumes will continue to rise, keeping incentives growing and supporting higher sales volumes.”
What to Do If You Need a Car Now?
For now, it’s a great time to find a deal. Shoppers can find great manufacturer deals like cash back and 0% to low interest rate finance offers, of which there appear to be plenty.
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 2024 model because dealers want to clear their lots.
Editor’s Note: This article has been updated for accuracy since it was initially published. Sean Tucker contributed to this report.