The average price of a new vehicle in the U.S. dropped by 2.6% in January 2024, as luxury brands offered significant discounts to boost their sales. According to Kelley Blue Book, a subsidiary of Cox Automotive, the average transaction price (ATP) for a new vehicle was $48,763, down from $50,031 in January 2023.
Luxury brands increase their market share with lower prices
One of the main factors behind the decline in new vehicle prices was the increase in luxury brand sales, which reached a record high of 19.8% of the total market in January 2024. Luxury brands, such as Audi, BMW, Lexus, and Mercedes-Benz, lowered their prices to attract more customers and compete with non-luxury brands.
The average price of a luxury brand vehicle was $60,978, the lowest since the summer of 2021. Luxury brands also increased their incentives to 6.2% of the ATP, more than double the level of a year ago. The incentives included cash rebates, low-interest financing, and lease deals.
Some of the luxury models that saw the biggest price drops and discounts were the Audi Q5, the BMW 3 Series, the Lexus ES, and the Mercedes-Benz E-Class. These models are among the most popular and profitable for their respective brands, and they face fierce competition from non-luxury models, such as the Toyota RAV4, the Honda Accord, the Hyundai Sonata, and the Ford Fusion.
Non-luxury brands face margin pressure from higher costs and lower demand
While luxury brands lowered their prices to gain market share, non-luxury brands faced margin pressure from higher costs and lower demand. The average price of a non-luxury brand vehicle was $44,697, down from $45,378 in January 2023. Non-luxury brands also increased their incentives to 5.5% of the ATP, up from 2.6% a year ago.
The higher costs for non-luxury brands were mainly due to the rising prices of raw materials, such as steel, aluminum, and plastic, as well as the higher cost of labor and transportation. The lower demand was partly due to the economic slowdown, the higher interest rates, and the lower consumer confidence.
Some of the non-luxury models that saw the biggest price drops and discounts were the Chevrolet Silverado, the Ford F-150, the Nissan Rogue, and the Toyota Camry. These models are among the best-selling and most profitable for their respective brands, and they face intense competition from other non-luxury models, as well as from luxury models.
Electric vehicle prices decline as Tesla slashes prices to boost sales
Another factor behind the decline in new vehicle prices was the decrease in electric vehicle (EV) prices, which dropped by 10.8% in January 2024, compared to a year ago. The average price of an EV was $55,353, down from $62,067 in January 2023. EV prices also declined by 3.2% from December 2023, when they were $57,184.
The main reason for the decline in EV prices was the price cuts by Tesla, the market leader in the EV segment. Tesla slashed the prices of its Model 3, Model S, Model X, and Model Y by up to $5,000 in January 2024, in a bid to boost its sales and market share. Tesla also increased its incentives to 3.0% of the ATP, up from 1.0% a year ago.
Tesla’s price cuts were partly due to the expiration of the federal tax credit for EVs, which was reduced from $7,500 to $3,750 for Tesla vehicles in January 2024. Tesla also faced increased competition from other EV makers, such as GM, Ford, Hyundai, and Kia, which launched new and improved models in 2023 and 2024.
According to Kelley Blue Book, the decline in new vehicle prices in January 2024 was a sign of the normalization of the market, after a period of high prices and low incentives in 2022 and 2023. The market is expected to remain competitive and dynamic in 2024, as automakers adjust their prices and strategies to meet the changing consumer preferences and market conditions.