It's Finally a Buyer's Market for New Cars
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New car buyers finally have the upper hand over sellers as prices fall farther below MSRP. According to a Kelley Blue Book report, vehicle prices just had the largest yearly decline ever.
New car prices, which almost always increase from year to year, are down 2.4% in the last 12 months. The average price of a new vehicle was $48,759 in December, which is a decrease from $49,939 at the end of 2022.
Brian Moody, executive editor at Kelley Blue Book, says there’s potential for U.S. car prices to fall even more in 2024 as vehicle inventory bounces back, forcing dealers to reduce their margins. The recent trends mean that car buyers can negotiate for discounts again, whereas vehicles often sold above the sticker price in 2022.
Bear in mind that car prices may not seem cheap if you haven't shopped for one in a while: The average new car costs nearly $10,000 more than it did in December 2019. But Moody says inflation over that period isn't quite that bad when you consider that luxury cars now make up about 20% of the market, up from around 10% to 12% before the pandemic.
The average price of a non-luxury brand car is now $45,283 — a little more reasonable. And transaction prices for non-luxury brands including Nissan (-4.7%), Subaru (-4.1%) and Ford (-2.5%) are down multiple percentage points in the last year.
“It’s shifting away from a seller's market,” Moody says. “Is today the day that you say, ‘Oh my gosh, everything is so inexpensive?’ No, but it's trending that way — and that includes increased incentives."
The average discount on a new vehicle has surpassed $1,000 for the first time since April 2021, according to an Edmunds report last month. (The average discount is the difference between the average sale price and the average sticker price.)
Depending on the car you want to buy, you may be able to negotiate several thousands of dollars off the MSRP. However, “that's not going to apply to the most popular types of vehicles: Full-size SUVs, minivans and pickups,” Moody says.
Deals on new cars are roaring back
The average incentive package — usually cash rebates or special financing — increased to 5.5% of the transaction price in December, according to Kelley Blue Book. A year ago, it was only 2.7%.
Some of the largest car discounts and incentives are available on EVs due to inventory glut. For EVs, average incentives are above 10%, up from less than 2% a year ago.
The price decline for Teslas in the past year (-25.1%) is the largest of any manufacturer. That has put a lot of pressure on other brands to lower prices, Moody says. Also, for brands like Hyundai that lost EV tax credit eligibility on Jan. 1, there’s new pressure for manufacturers to compete by offering big incentives.
In one of the most striking deals yet for this market, Hyundai just announced that it’s offering up to $7,500 of bonus cash on certain electric vehicle models like the Ioniq 5 SUV, effectively reducing the starting price from $41,650 to $34,150.
Overall, EV prices are down nearly 18% in the past year and now average $50,798, bringing electric vehicle costs much closer in line with the average price of all cars.
3 tips for buying a new car in 2024
Now that buyers have more power to negotiate and strategize ways to get the most for their money, here are some tips for car shopping in 2024:
Pay cash or make a big down payment
Even though the auto market is improving for buyers, financing conditions remain tough. The average auto loan rate was about 7.4% in the fourth quarter of 2023, which is about 2 percentage points higher than the average at the end of 2019, according to Edmunds.
A buyer taking out a 60-month loan for $25,000 at current rates should expect to pay about $5,000 in interest over the life of the loan. Anyone who can pay cash or make a larger down payment has a huge advantage in the current market.
Know your credit score
If your credit score needs improvement, you'll pay higher interest rates on auto loans and likely won't qualify for manufacturer incentives like financing deals or cash back offers.
Before you go shopping for a car, make sure you know your credit score. In some cases, it makes sense to work on your credit first, then look into buying a car.
Shop, shop, shop and be flexible
The inventory of new vehicles in the U.S. has climbed to about 2.7 million, which is more than a 50% increase from a year ago. That means if you're car shopping today, there's a good chance you can negotiate a discount or secure an attractive manufacturer incentive — either a rebate or subsidized financing.
Experts always recommend comparing prices at multiple dealerships, and don't be afraid to walk away from a negotiation if you think the price is too high.
If you're not finding good deals anywhere, consider shopping for less popular models, Moody says.
"People who go look for the most popular thing and then say, 'Oh, well, how do I get a discount?' You change what you're buying — that's how," he says.
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