New-vehicle prices in the U.S. continued to decline in July, marking the 10th consecutive month of year-over-year decreases, according to data released by Kelley Blue Book. Despite this, high loan rates and tight credit conditions are keeping many potential buyers on the sidelines, while growing incentives are beginning to entice some back into the market.
The average transaction price (ATP) for a new vehicle in July was $48,401, slightly down from both June and last year’s prices. This represents a 3.1% decrease from the peak in December 2022, when ATPs reached nearly $50,000.
The dip in prices is largely attributed to healthier inventory levels, which rose 52% year-over-year to 2.91 million vehicles at the start of July. This surplus is exerting downward pressure on vehicle prices, particularly in the compact and subcompact SUV segments, where ATPs remain well below the industry average.
However, while prices are dropping, the affordability of new vehicles remains a significant challenge for many consumers. High auto loan rates have led to increased monthly payments, deterring buyers despite the more favorable pricing environment.
"The higher incentives are helping consumers, but stubbornly high interest rates and tighter credit conditions continue to make affordability challenging," said Erin Keating, executive analyst at Cox Automotive.
Incentives offered by automakers have risen to the highest level seen in more than three years, averaging 7.0% of ATP, or $3,383, in July. This marks a significant increase from the 4.4% average in July 2023, with nearly every major brand, except for Ram, reporting higher year-over-year incentive levels. Surprisingly, despite leading in inventory levels, Stellantis brands like Chrysler and Jeep are offering incentives below the industry average.
Electric vehicle incentives have also surged, now averaging more than 12% of ATP in July, a notable increase from 6.0% a year ago. The average transaction price for EVs, however, remains relatively stable at $56,520, reflecting a 1.5% decrease year-over-year.
Overall, the U.S. auto market is in a state of flux, with a mix of lower prices, rising incentives and high loan rates creating a challenging environment for both consumers and automakers. As Keating noted, "If we are going to see the market live up to its potential, we will need to see rates lower, and credit loosen."
