When Will Car Prices Drop?

If you've had an interest in buying a new or used car as of late, you might've noticed that prices have skyrocketed from the last time you were in the market. This has caused prospective buyers to sit on the fence as they wait things out and wonder, "When will car prices drop?" The good news is that car prices have fallen, but a number of other factors have kept them from dropping to pre-pandemic levels.

"Anyone waiting for a sudden reduction in dealer asking prices or a major uptick with incentives offers had better hold tight until next year," said Ivan Drury, Edmunds director of insights.

What you need to know about current car prices

• In July 2023, the average transaction price was 33.7% higher for new cars and 45.7% higher for used cars compared to the same month five years ago, according to Edmunds sales data.
• That said, sales prices have stabilized and have been heading slightly downward since January, with the average discount increasing from $15 in January to $714 in July 2023.
• High interest rates remain a factor in keeping people from buying cars.
• The top five brands offering the greatest discounts are Alfa Romeo, Volvo, Audi, Ram and Mercedes-Benz.
• Automakers such as Honda, Toyota and Kia are, on average, selling for above MSRP.

Why are car prices still high?

The auto industry is grappling with a number of issues that have affected both new and used car prices. Automotive manufacturing is still not at pre-pandemic levels, which has kept new car inventory at relatively low levels. Then, on the one hand, you have a succession of interest rate hikes by the Fed, which have curbed the level of enthusiasm and buying power for cars, said Drury. But on the other hand, there are millions of consumers who have waited until vehicle availability improved to start their search again.

"These factors have created a landscape in which the current supply of new autos matches the suppressed level of demand, and the level of discounting has stalled out, versus increasing from months prior."

In other words, the consumers who are choosing to sit things out until better deals appear and those who need a car now have essentially whittled down the car-buying crowd to the point where it matches the current inventory levels. Since the demand matches the supply, there's no motivation for automakers or dealerships to reduce prices. It's not an ideal scenario for car shoppers as we forecast the days of high inventory and deep discounts aren't anywhere in the foreseeable future.

New vehicle pricing trends by type

Non-luxury vehicles: Mainstream non-luxury vehicles sold for an average of $44,358 in July 2023, which was $139 higher than the year before.

Luxury vehicles: High-end luxury vehicles sold for an average of $68,624 in July 2023, which was $2,237 higher than the year before.

Electric vehicles: EVs fared the best in this comparison — they sold for an average of $60,758 in July 2023, which was $2,135 less than the year before.

When you slice up the categories like this, it does appear that most new car prices aren't really dropping, but there's more to it than that. If you look at the overall industry averages, the data shows that prices are falling from month to month. There are discounts to be had, but at the same time, not every automaker has hopped aboard the deals train.

When will new vehicles see a price drop?

There's good and bad news here. The good news is that, in general, prices have been on the decline since late 2022. In May 2022, the average selling price of a vehicle was about $721 over MSRP. Compare that to July 2023, when the average selling price was about $714 below MSRP. And in each month since January, there have been consecutive increases in the average discount. However, the $700 discount range is where things have stalled at the moment.

The bad news is that the overall MSRP of a vehicle has steeply risen in that same timeframe. In May 2022, the average MSRP of a car was $41,798, compared to $48,274 in July 2023. Inflation is partially to blame, but also people want bigger cars, more features and better safety tech, all of which drive up the price of the vehicle.

Which automakers are offering the most and least discounts on new cars?

As of July 2023, Alfa Romeo, Volvo, Audi, Ram and Mercedes-Benz were offering the greatest discounts — roughly between $2,000 to $5,500. The brands offering the lowest discounts were Hyundai, Dodge, Cadillac, Genesis and Mazda, with discounts ranging from $89 and $493 on average. Then you have vehicles from Toyota, Honda, Kia and Land Rover that were selling above MSRP — anywhere from $285 to over $1,700 on average.

Keep in mind that the chart below is a snapshot in time. Things can and will change, but it does give you a basic idea of which automakers are trending up or down in terms of discounts. In the last column, you'll see the days-to-turn figure. Days to turn is an industry term for the average number of days vehicles from a brand sit in dealer inventory before being sold. In general, the longer a car sits on the lot due to slow sales, the more the dealership is motivated to discount it. That said, it is not a hard-and-fast rule, as brands such as Audi, BMW, Lexus and others have vehicles with days to turn below the industry average yet they're discounting their vehicles.

When will we see more incentives and rebates on new cars?

According to Edmunds analysts, incentives are more widely available than they were a couple of years ago. One difference to note is that automakers are more selective in terms of which vehicles get these special offers. You're more likely to see them on outgoing or discontinued body styles versus a refreshed or redesigned model, said Drury.

Make sure to keep tabs on Edmunds' roundup of incentives and rebates, where we track the latest manufacturer offers on a monthly basis.

When will used vehicles see a price drop?

Used car pricing has dropped slightly over the past year, when the average transaction price was about $30,756, compared to $29,198 in July of 2023. As prices increased for new cars, many car shoppers went in search of deals and looked to used cars, which traditionally offer lower pricing. But, in turn, that shift in demand caused a shortage of used cars, driving up those prices as well.

Why it is still a great time to trade in your car

One bright spot to used car prices remaining high is that it makes your current vehicle more valuable. Dealerships are in need of quality used cars and this works in your favor. You'll likely be offered a higher price for your trade-in than you might have expected. A more valuable vehicle can help offset the higher price of a new car, contribute to a better down payment, or even put more money in your pocket after selling it. Use the Edmunds appraisal tool to get an instant no-obligation offer on your vehicle to determine its true value.

Edmunds says

It is a tough market for car buyers, but the good news is that prices are slowly falling and higher-than-usual trade-in values can help soften the impact. Pay attention to which brands are offering greater discounts and if you're willing to give them a chance, it could save you some money.