Car buyers need to beware.
According to automotive research firm Kelley Blue Book, the prices of new cars increased last month, alongside a rise in sales and higher incentives offered by dealerships. In November, the average transaction price for a new vehicle reached $48,724, marking a 1.5% year-over-year increase. This was the second consecutive month of price hikes. Despite these higher costs, new car sales saw an uptick.
Erin Keating, Executive Analyst at Cox Automotive, noted that while prices climbed, they were accompanied by higher discounts, which helped maintain retail sales. “Post-election pent-up demand, along with improved consumer confidence, seems to be fueling the market. Increased incentives are also playing a significant role,” Keating stated.
While the average price of vehicles rose modestly, November saw a notable increase in incentives, which surged over 50% compared to the previous year, likely contributing to the rise in sales.
By early November 2024, over three million new vehicles were available for purchase, the highest level since 2020, providing consumers with more choices. Keating also pointed out that transaction prices tend to rise as the year draws to a close, driven in part by a boost in luxury vehicle sales.
“If November’s sales are any indication, the automotive industry could wrap up 2024 on a strong note,” Keating said. “While prices continue to trend upward, the increase in incentives and discounts is bringing in buyers.”
Vehicle prices may soon decline, particularly as the U.S. Federal Reserve has begun lowering interest rates, having reduced them twice in recent months. A report from S&P Global indicated that lower interest rates may encourage more buyers with strong credit histories to return to the market, especially those who had delayed purchasing due to high prices.
Kelley Blue Book also reported that while the average price of new vehicles rose in November, prices for new electric vehicles (EVs) fell by 3.8% compared to the previous year. Incentive spending on EVs surged, reaching 14.9% of the average transaction price, the highest level since the pandemic. The typical incentive package for a new EV in November exceeded $8,200, which includes any applicable government-backed incentives at the point of sale.
New EV owners can qualify for federal tax credits up to $7,500, provided certain conditions are met, such as the vehicle being assembled in North America. However, there have been concerns about the future of these credits under the incoming Trump administration. President-elect Donald Trump has expressed intentions to end the electric vehicle mandate if re-elected. California Governor Gavin Newsom has indicated that the state may offer rebates if federal incentives are eliminated.
An October study predicted that the removal of federal EV credits could hurt EV sales, referencing a similar situation in Germany, where a $4,900 EV subsidy was removed in December 2023, resulting in a 26.6% drop in annualized EV sales. Researchers estimate that removing U.S. federal EV credits could reduce EV registrations by 27%.
Additionally, the decline in used EV prices, which are falling much faster than those of gasoline-powered or hybrid vehicles, could deter potential buyers. Between August 2023 and August 2024, used EV prices dropped by 24.7%, compared to a 6% drop for used hybrids and a 4.4% drop for used gasoline vehicles, according to iSeeCars. This rapid depreciation of used EVs is causing concern among prospective buyers who may hesitate to purchase electric vehicles if they anticipate significant losses in resale value.
