Average transaction prices (ATP) for new vehicles increased slightly in May, although consumers continued to pay below the manufacturer’s suggested retail price (MSRP) for the fifth month in a row, according to Kelley Blue Book data.
New car ATP grew 0.5% from April, a gain of $251, and 3% from the same period a year earlier, an increase of $1,393. The rate at which price tags have risen de-accelerated during the last 12 months: in May 2022, ATP jumped 13.5% from May 2021. Meanwhile, consumers continued to pay less-than-recommended prices for new vehicles. While car buyers paid $637 over MSRP the year before, that number has now declined to $410 below MSRP.
Driving these shifts are elevated car prices, improved new-vehicle inventory and boosted incentive spending from OEMs. Although the cost of new vehicles, excluding the luxury market, grew $158 over April to $44,960, the use of incentives, however, also expanded. Incentive spend hit 3.9% of ATP in May, a rate that Cox Automotive notes is the highest observed in 2023. Rebecca Rydzewski, research manager of economic and industry insights at the firm, argues that increases in competition and inventory pushed the need for discounts to boost demand. She goes on to call the shifts “good news for consumers…”
Although ATP is showing some signs of falling back to pre-pandemic levels, the issue of affordability is still one of the predominant factors preventing consumers from returning to new-vehicle storefronts. Under the pressures of higher interest rates, inflation and credit availability, many U.S. drivers continue to rely on the used car market or wait for economic headwinds to settle. Bringing these buyers back to dealership lots will likely take even greater shifts in incentive spending from car manufacturers in addition to discounts at the dealership level.