New car prices are falling as the highest inventory levels in years force dealers and automakers to reduce their margins.
According to data from Kelley Blue Book, the average price of a new vehicle was $47,401 in January, which is a 2.6% drop from December’s average price of $48,652.
New car prices are also down 3.5% from a year ago. In January 2023, the average price was $49,125, making this drop noteworthy as new car prices almost always increase year after year.
“Prices have been trending lower for about six months now as automakers are sweetening deals to keep sales flowing,” Erin Keating, executive analyst at Cox Automotive, said in a report.
In other words, car prices decrease as the number of cars on dealer lots increases. According to Cox data, the new vehicle fleet currently stands at 2.66 million units, an increase of 49% compared to last year.
Increased vehicle production and relatively low buyer demand are the main factors leading to the increase – and discounts to attract buyers. For example, eligible customers can get up to $7,850 in cash back on select 2023 Dodge Durango models.
Despite the recent decline in average transaction prices, car prices are still up nearly $11,000 as of January 2023. Auto loan rates are also higher, meaning affordability remains a big issue for American motorists.
The average auto loan rate on a new vehicle is 9.68%, only slightly lower than the recent peak of 9.95% recorded in mid-October (which was the highest level in at least five years). In fact, experts say many potential buyers are waiting to purchase their next car until financing options improve.
“With the highest rates so far this year, the consumer has a limited sense of urgency right now beyond cash in hand,” Jonathan Smoke, chief economist at Cox, said in a separate report Tuesday.
For buyers with a good credit score, it’s still possible to find a low APR financing deal, especially if you’re purchasing a less sought-after vehicle. According to Cox, more than 13% of car buyers secure an APR of less than 3%.
Even in the used vehicle market, prices are decreasing compared to last year. According to Cox, the average list price was $25,328 in January, or 4% less than a year ago. But loan rates for used cars are still higher than those for new vehicles, and a recent report from car ownership app Jerry found that most American families can’t even afford the average used car .
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