Great news if you're looking to buy a new vehicle. New vehicle prices fell for an eighth consecutive month in May - and incentive spending was at its highest in two years.
New Vehicle Prices Continue Trend Downward
Kelley Blue Book (KBB) data indicates that new-vehicle prices continue to trend lower versus than they did a year ago, declining for the eighth month in a row in May, down nearly one percent year over year. According to KBB estimates, May's average transaction price (ATP) for a new vehicle in the U.S. was $48,389, which it says is statistically unchanged from the revised price of $48,368 in April. KBB says the new-vehicle ATP in May was lower year over year by 0.9%, or approximately $442.
Full-Size Pickups Continue to Skew ATPs Higher
Shoppers can continue to thank high-priced, top-selling full-size pickup trucks for skewing ATPs higher. The average price paid for the best-selling vehicle in America – the Ford F-Series pickup – was nearly $68,000.
Incentives Increase
Higher incentives also helped make new vehicles more affordable in May. The average new-vehicle incentive package – discounts and rebates included – last month was 6.7% of the average transaction price, according to KBB estimates, an increase from April and the highest level since May 2021. Incentives in May were approximately $3,200, notably higher than one year ago when discounts were measured at 4.0% of ATP.
"In May, we saw some positive news on the sales front," said Erin Keating, executive analyst for Cox Automotive. "A lot of those sales gains were juiced by higher incentives and lower prices, which is good news for consumers worrying about inflation. While there are a lot of vehicles transacting at very high prices, that doesn't mean all new vehicles are unaffordable. There are still plenty of excellent, well-priced vehicles out there, particularly in the compact segments."
Higher Inventory, Lower Prices
KBB calls today's new-vehicle market a "textbook example of supply-and-demand dynamics in the economy." At the beginning of May, new-vehicle inventory was estimated at 2.84 million, which was higher year over year by 51% and at the highest point since late 2020, according to vAuto Live Market View. (vAuto is a Cox Automotive brand.) Many brands had more than 100 days' supply at the start of May, and only Toyota, Lexus and Honda had days' supply under 60. KBB says higher new-vehicle inventory continues to keep industry-average prices in check and drive incentives higher, as consumers have more choices and dealers are willing to deal.
It's Complicated
Today's car market is complicated to be sure. On one hand you have higher inventory levels that are holding down overall prices. At the same time, KBB says average industry prices are being pushed higher, in part, by expensive, high-volume models. May's market was typical in the U.S. with four of the top 10 best-selling vehicles in full-size pickup trucks:
- Ford F-Series
- Chevrolet Silverado
- Ram Pickup
- GMC Sierra
All four trucks posted ATPs above $60,000, with the GMC Sierra – No. 7 in the top 10 list – above $70,000. The best-selling vehicle in the U.S. last month, the popular Ford F-Series pickup, had an average price only slightly lower, near $68,000. KBB adds that since ATP estimates are volume-weighted to reflect market realities properly, high-volume vehicles have more influence on the calculation.
While pickup trucks pushed prices higher, there were five models in the top 10 that rang in with transaction prices below $40,000 - well below Kelley Blue Book's average transaction price for the industry. They include the Toyota RAV4 – the third most popular vehicle in America – with transaction prices averaging $37,608. And the Honda CR-V – No. 4 in sales – had an ATP in May of $37,364, nearly 23% below the national average.
"It's called an average for a reason," added Keating. "The U.S. market is very diverse, with plenty of popular, high-priced vehicles that sell very well and drive the average higher. The popularity of fully loaded, full-size pickup trucks that are more luxurious than many luxury vehicles is unique to the U.S. market. The Ford F-Series outsold BMW 2-to-1 in May, and BMW's ATP was only marginally higher than the F-Series." (Note: $72,946 versus $67,937).
While four popular pickup trucks push prices higher, five of the top 10 most popular vehicles transacted at prices below $40,000 and well below the Kelley Blue Book average transaction price for the industry – $48,389. Examples include the Toyota RAV4 – the third most popular vehicle in America – with transaction prices averaging $37,608. And the Honda CRV – No. 4 in sales – had an ATP in May of $37,364, nearly 23% below the national average.
"It's called an average for a reason," added Keating. "The U.S. market is very diverse, with plenty of popular, high-priced vehicles that sell very well and drive the average higher. The popularity of fully loaded, full-size pickup trucks that are more luxurious than many luxury vehicles is unique to the U.S. market. The Ford F-Series outsold BMW 2-to-1 in May, and BMW's ATP was only marginally higher than the F-Series." (Note: $72,946 versus $67,937).
Data Indicates Market Shift To More Affordable Vehicles
Not only did half of the top ten models transact below $40,000 in May. The share of vehicles transacting below $40,000 increased as well compared to last May. KBB says that suggests a market shifting to more affordable models.
- Vehicles transacting below $40,000 accounted for 41.2% of new-vehicle sales in May, up from 36.8% one year ago.
- Kelley Blue Book counted approximately 70 different models available for below $40,000. (Only one model with meaningful sales volume – the Mitsubishi Mirage – transacted below $20,000.)
On the flip side, nearly 100 different models posted ATPs over $60,000 in May, accounting for 26.4% of total sales, an increase from 20.4% in May 2023:
- The most expensive vehicle tracked by KBB was the Mercedes G-Class, with an average transaction price above $208,000 and sales of more than 1,000 units last month.
- In May, vehicles with transaction prices above $60,000 gained share year over year, as did lower-priced models (less than $40,000).
- The middle of the market, vehicles with ATPs ranging from $40,000 to $60,000, lost share in May, falling from 37.9% in May 2023 to 32.5% last month.
EV Prices Climb as Tesla Prices Gain
New electric vehicle prices are up due to Tesla's dominating influence on the market. Tesla prices, which bottomed out in late 2023, are estimated to have increased by 3.1% month over month to $57,369 in May. Prices were higher year over year by 1.5%. Since January, when Tesla ATPs stood at $51,892, the EV maker's average transaction price has increased by more than 10%, lifted in some part by growing Cybertruck sales – an estimated 3,000 were sold in May. Average transaction price: $108,667.
As Tesla is a bellwether for the overall EV market – with a nearly 50% share of total EV sales – overall EV transaction prices also increased in May. The average price paid for an electric vehicle in May was $56,648, which is 2.6% higher than in April. Unlike Tesla, though, industry-wide EV prices in May were lower year over year by 4.1%. EV incentives continue to run much higher than the overall market. In May, the average incentive package for an electric vehicle was 12.4% of the ATP, up from April and 5.7 percentage points higher than the industry average.
Overall, KBB says new EV prices peaked in the summer of 2022, during the last gas price surge, and have since generally been on the decline. This year, EV prices have been volatile on a month-to-month basis and fell to a low in March before increasing again in April and May. EV ATPs in May were approximately 17% higher than the industry average ATPs. One year ago, the EV premium was 21%.
- Photo Credit: Ground Picture/Shutterstock.com.
- Source: Kelley Blue Book Press Release.