Car prices just keep rising. According to new data from Kelley Blue Book, the average transaction price (ATP) of new vehicles climbed to $49,740 in December, a 1.5% increase from November and a 1.3% rise compared to the same time period in 2023. The rising average brings prices close to the all-time high of $49,958 set just two years ago.
Several factors contributed to the increase, including a holiday-driven spike in luxury vehicle demand and elevated incentives. Erin Keating, an executive analyst at Cox Automotive, said that consumer optimism and a brief dip in interest rates late in 2024 spurred vehicle purchases. “Vehicles, especially luxury models, are emotional purchases. When optimism rises, so do sales,” she noted.
Despite a growing affordability crisis in the automotive market, there doesn’t appear to be any relief on the horizon. We crunched the numbers to see exactly what areas of the market are driving prices higher.
Related: The top 6 driver’s cars for $25,000 in 2025
Luxury vehicles dominate December sales
December has traditionally been a strong month for luxury sales, and 2024 continued that trend. On average, vehicles priced above $80,000 account for roughly 4.4% of total vehicle sales in a given month, but last month saw that figure rise to 5.6%, representing an all-time high for the segment. Models including the Land Rover Range Rover, Cadillac Escalade, and BMW X7 led the charge, reflecting a growing appetite for high-end vehicles.
View the original article to see embedded media.
Luxury cars saw the biggest year-over-year price increase, up nearly 10% to an average price of $58,931 in December. Full-size Luxury SUVs, a particularly popular category, weren’t far behind, marking an 8.2% increase in price year-over-year with an average price of $107,854.
So-called entry-level luxury cars also experienced notable demand, bolstered by incentives that averaged 10% of their ATP, making them an attractive option for buyers looking to enter the luxury market.
Certain brands saw significant growth in transaction prices. Cadillac reported a 12.8% year-over-year increase in average prices, while Tesla prices rose 10.5%. These gains reflect a shift in consumer preferences toward higher-end models and advanced technology features.
Related: EV sales soar to record heights in 2024: What’s behind the gains?
Incentives are on the rise
Incentive spending reached 8% of the industry average transaction price in December, amounting to nearly $4,000 per vehicle. December marked the fifth consecutive month of increased incentives, a trend driven by automakers looking to boost sales amid growing inventories.
Volkswagen, Ram, and Nissan offered some of the most generous discounts, with incentives exceeding 13% of ATP. Meanwhile, Toyota, Land Rover, and Porsche maintained some of the lowest incentives in the industry.
Electric vehicles (EVs) also benefited from substantial discounts. Incentives for EVs averaged 14.3% of ATP in December, a slight decrease from November but still significantly higher than a year ago. This helped propel EV sales to over 1.3 million units in 2024, setting new records for both volume and market share.
Related: Nearly half of young Americans don’t want to own a car
Deals in all the wrong places
Despite costs rising across much of the market, segments like subcompact cars offer great deals for the cost-conscious buyer. Average prices for subcompacts were down 17% year-over-year in December to a budget-friendly $21,893. Still, issues remain. Most notably that almost no one wants a subcompact car.
Affordability concerns drove consumers to smaller vehicles last year, according to data from Edmunds, but smaller is a relative term. While consumers flocked to compact trucks and subcompact SUVs, many were still unwilling to make the leap all the way down to a subcompact car.
Consumers and automakers still managed to align on some key categories. Subcompact SUVs, a favorite of new car buyers in 2024, saw prices decline 2.5% year-over-year in December. Granted, that only amounts to an average savings of about $650 on a nearly $30,000 price tag.
Higher interest rates and extended loan terms are exacerbating affordability challenges. Even with rising incentives, many consumers are finding it increasingly difficult to justify or manage the cost of a new vehicle.
Related: How electric cars are falling behind the pack
A bougie bunch of brands
A few automakers defied the industry trend, with brands like Mitsubishi and Buick reporting significant year-over-year price declines. Meanwhile, luxury-oriented brands like Cadillac, Acura, and Infiniti saw their average transaction prices rise well above the market’s modest 1.3% average.
View the original article to see embedded media.
Cadillacs sold in December cost about $9,000 more on average than they did just a year before, with an ATP of nearly $80,000. Despite Infiniti reporting a 10% decline in sales last year, transaction prices continued to rise—up about $5,000 year-over-year to an average price of $65,667 in December.
Even relatively affordable brands like Kia, Honda, and Toyota saw their prices increase far above the industry norm. In December, an average Toyota cost nearly $42,000, up 3.5% from 2023. Kia and Honda saw even bigger price spikes, with year-over-year prices up 4.8% and 3.8%, respectively.
Related: Biden admin rejects Tesla’s $100 million request for big-rig charging plan
Final thoughts
As the automotive industry enters 2025, elevated prices are likely to persist, driven by strong luxury sales and the growing popularity of electric vehicles. However, the question of affordability looms large. Rising interest rates and economic pressures could temper demand, particularly among middle-income buyers.
For now, consumers navigating the new car market must contend with high prices, limited incentives on popular models, and, potentially, a smaller vehicle than they want. While automakers celebrate record-breaking sales and transaction prices, the sustainability of these trends is far from certain. How long can the market thrive before the affordability crisis takes center stage?
Related: These British classics have a secret: The surprising truth beneath the badge
#Vehicle #prices #approach #alltime #highHere #whats #driving #trend
Leave a Reply