Car Market Forecast: Will New Car Prices Drop Soon?

If you have visited a dealership recently, you already know the sticker shock is real. After years of record-high costs, buyers are exhausted and looking for relief. Fortunately, the auto industry is showing signs of a shift. We are analyzing current inventory levels, interest rates, and brand incentives to predict if new car prices will finally drop.

The Current State of New Car Prices

To understand where prices are going, we have to look at the hard numbers. Kelley Blue Book reported that the average transaction price for a new vehicle in early 2024 sat at roughly $47,400. While this sounds incredibly steep, it actually represents a drop of over 2% compared to the previous year.

We are no longer seeing the massive dealer markups that dominated 2021 and 2022. During the peak of the pandemic shortages, buyers routinely paid thousands over the Manufacturer Suggested Retail Price. Today, the average buyer is actually paying slightly below the sticker price.

Why Prices Are Finally Cooling

Several converging factors are forcing automakers and dealerships to rethink their pricing strategies.

Dealership Lots Are Filling Up

The biggest driver of falling prices is simple supply and demand. For the past three years, a global microchip shortage kept dealership lots completely empty. Now, automotive production has largely recovered.

Cox Automotive tracks a metric called “days of supply,” which measures how long it would take to sell all current inventory at the current sales pace. A healthy market usually sits around 60 days. Currently, the national average is pushing past 75 days.

Some brands have far more cars than they can sell. Stellantis, the parent company of Jeep, Ram, Chrysler, and Dodge, has been sitting on over 100 days of supply for many models. When dealers have too many cars, they are forced to slash prices to make room for incoming shipments.

The Return of Manufacturer Incentives

Automakers are aggressively fighting for buyers again. Manufacturers are increasing their incentive spending, which now averages over 5% of the total vehicle price. This is a massive jump from the mere 2% we saw a year ago.

You can expect to see specific promotions making a strong comeback on your local television and internet ads:

• Cash-back rebates: Brands like Ford and Chevrolet are currently offering $1,000 to $2,500 cash allowances on certain pickup trucks and midsize SUVs.
• Subsidized interest rates: With standard bank auto loan rates hovering around 7.2%, automakers are stepping in to help buyers afford monthly payments. Hyundai, Kia, and Subaru have recently offered promotional rates between 0% and 3.9% for highly qualified buyers on models like the Hyundai Tucson and Subaru Outback.
• Lease deals: Monthly lease payments are slowly becoming attractive again as companies try to move high volumes of inventory quickly.

Not All Car Brands Are Discounting

It is vital to understand that the car market is currently split. Your shopping experience will depend entirely on what badge is on the steering wheel.

Where You Will Find Discounts

Domestic brands and certain Asian automakers have heavy inventory. If you are shopping for a Ram 1500, a Ford Explorer, or a Nissan Rogue, you have significant negotiating power. Dealers are eager to move these vehicles and will readily discuss discounts below sticker price.

Where Prices Remain High

Toyota and Honda are entirely different stories. Both companies are keeping production incredibly tight and operating with less than 40 days of supply. Finding a Toyota RAV4 Hybrid, a Toyota Sienna minivan, or a Honda CR-V Hybrid sitting on a lot is still very difficult. Because demand outpaces supply for these highly reliable, fuel-efficient models, you will likely pay the full suggested retail price.

Electric Vehicle Prices Are Dropping Fast

If you are in the market for an electric vehicle, prices are dropping at an aggressive pace. Tesla started a massive price war in 2023 by slashing the cost of the Model 3 and Model Y by thousands of dollars. This forced every other automaker to respond to stay competitive.

Ford dramatically cut the price of the Mustang Mach-E, and Volkswagen introduced heavy lease incentives for the ID.4. Additionally, the $7,500 federal EV tax credit is now available as a point-of-sale rebate for qualifying buyers. This means you can instantly knock thousands off the purchase price of eligible vehicles right at the dealership, rather than waiting until tax season.

The Final Forecast: Should You Wait to Buy?

Will prices crash back to 2019 levels? No. The rising cost of raw materials, mandatory advanced safety technology, and general inflation means the $20,000 new family car is largely a thing of the past. However, prices are absolutely deflating.

If you need a car right now, you can find a fair deal by targeting brands with high inventory and taking advantage of promotional financing. If your current vehicle is running fine, waiting until the end of the calendar year could pay off. Dealerships traditionally clear out current model-year inventory in November and December to make room for the new year, which almost always leads to the deepest discounts.

Frequently Asked Questions

Are dealer markups over MSRP still happening? Generally, no. Most widespread dealer markups are gone. You might still see them on extremely rare performance cars or highly sought-after vehicles like the new Toyota Prius, but the average family SUV or sedan will not carry a markup.

What is the current average interest rate for a new car loan? As of early 2024, the average interest rate for a new car loan sits around 7.2%. However, buyers with excellent credit can secure much lower rates by looking for promotional financing directly from the manufacturer.

Will used car prices drop along with new car prices? Yes. Wholesale used car prices have been steadily falling over the last year. As new cars become cheaper and easier to find, overall demand for used cars drops, pulling those prices down in tandem.