New car prices continued to fall in December as the automotive market remains on track to hit pre-pandemic norms in the near future.
According to Cox Automotive, new vehicle transaction prices in the last weeks of 2023 averaged $48,759, rising slightly after a cooldown in November but falling 2.4% from the year before. The price drops in December, the fourth consecutive month with a year-over-year new car price decline, underlines how rapidly trends in the automotive market have changed course.
One of the key takeaways from December was that incentives and discounts are now back in full force. Incentives accounted for 5.5% of new car prices by the end of 2023, compared to only 2.7% in late 2022. Luxury vehicles saw even higher shares of incentives, which comprised 8% of average transaction prices in the segment.
Electric vehicles were most impacted by falling new car prices, although some of this is due to the current industry landscape. Tesla continues to dominate the EV market, meaning the company’s decisions tend to dictate how the segment performs. New battery-powered vehicle prices declined 17.7% throughout 2023 and averaged $50,798 for the month of December. However, nearly all of this drop is due to Tesla, which has focused on aggressive price cuts for more than a year. While other automakers have been more reticent to adjust MSRPs on electrified models, the Elon Musk-led company has almost single-handedly shifted cost expectations for EV buyers in as little as a year.
Between falling new car prices and incentives, most vehicles are now retailing below their MSRP. “When we look at price strength, the pandemic created a seller’s market in which new vehicles were transacting above manufacturers’ suggested retail price in 2022,” commented Cox Automotive Executive Analyst Michelle Krebs. “That market is all but gone now, as higher inventory has led to higher incentives and discounts…and vehicles are now typically selling for under MSRP. The shift from a seller’s market to a buyer’s market is well underway.”