Declining electric vehicle (EV) prices led to new vehicle prices remaining virtually flat in August compared to the same period a year ago. But new vehicle inventories continue to build along with incentives, which increased for the 11th consecutive month, which now stand at 4.9% of the average transaction price, up from 2.3% one year ago.
The average transaction price for a new vehicle in August was $48,451, up $42 from one year ago, according to Cox Automotive’s Kelley Blue Book. While prices rose 0.6%, or $286, from July’s revised average transaction price of $48,165, transaction prices declined 2.4%, or $1,212, since January, making it the largest decrease in the past decade.
“After a tumultuous last few years in the automotive marketplace, now we are seeing new-vehicle pricing trends hold steady,” said Rebecca Rydzewski, research manager at Cox Automotive.
“Dealers and automakers are feeling price pressure, and with high auto loan rates and growing inventory levels, new-vehicle prices seem to have hit a ceiling, at least for now. The very real potential for a UAW strike may impact some product lines, but with the current inventory levels in place, we don’t expect a short-lived strike to impact consumer prices in any meaningful way, at least in the near term.”
Tesla price cuts weigh on luxury and EV sectors
Overall industry volume increased by more than 16% in August, led by luxury vehicle sales which jumped 23% year over year, helping to push sales higher even as non-luxury sales rose a lower, but still robust 15% – higher than the same period a year ago.
Tesla’s aggressive price cutting led to luxury vehicle prices dropping 3.3% last month compared to the same month a year ago. Of course, now might be the time to buy a Tesla as the automaker’s average transaction prices plummeted 19.5% last month compared to August 2022, as higher volume is becoming a priority as EV competition increases. And Tesla’s prices are plummeting, the Tesla Model 3’s price declining by more than 21% year over year, joined by the Model S, down 17%, Model Y, down 16%, and Model X down 13%. This has led EV incentives to climb to 8.1% of average transaction price in August, or $4,298.
All of this has weighed on the segment, with EV prices plummeting nearly 19% year over year, falling to $53,376 from $65,688.
“The No. 1 issue for consumers is price, and that’s a barrier even to considering an electric vehicle,” said Cox Automotive Chief Economist Jonathan Smoke. “Surplus inventory and increased competition will eventually drive down prices, which will help with EV consideration and adoption.”
Tesla’s price cuts offset year-over-year increases from Audi, BMW, Cadillac, Land Rover, Lexus, Lincoln and Mercedes-Benz last month, with average transaction prices for Audi and Mercedes-Benz jumping more than 10%. But not all brands enjoyed higher pricing power, with Buick, Infiniti, Jaguar and Volvo seeing their average transaction prices decline.
Still, this pricing dichotomy, and Tesla’s huge luxury vehicle volume, explains why the average tariff for luxury vehicles still managed to rise slightly last month compared with July, even though average transaction prices have dropped 3.3% year-over-year to $64,107.
In fact, the price of pricey vehicles is getting less pricey, with the average cost of a luxury vehicle dropping more than 4% since the start of the year.
Good news for mainstream car buyers
Month-over-month, non-luxury vehicle prices dropped $169 from July to August, coming in at $44,827, although that’s up 0.7% year-over-year. But average incentive spend leapt 9.5% month-over-month, rising to 4.7% of average transaction price in August from 4.3% in July, and an increase of 2.3% from one year ago.
Despite the increased cash flow, cars remain pricey, with only compact cars, subcompact cars and subcompact SUVs having an average transaction price of less than $30,000 in August.
The least-expensive vehicles in the U.S. market were the Mitsubishi Mirage and the Kia Rio. But they won’t be on the market much longer, as the Mirage’s U.S. production is expected to end in 2025 according to AutoForecast Solutions, while the Kia Rio is being dropped for the 2024 model year.
In fact, 45% of U.S. market sales volume in August comprised of pickup trucks with an average transaction price of $65,567, midsize SUVs, with an average transaction price of $46,381, and compact SUVs with an average transaction price of $35,688.
“Dealers are realizing this is not going to be an easy road in the short term, especially for some brands,” Smoke said. “However, the pressure dealers feel is from over-supply rather than a lack of demand.”