When Will New Car Prices Drop?

Quick Facts About New Car Prices

• The pace of national sales remained relatively stable year over year on an adjusted basis and improved month over month.
• The February new-vehicle market showed signs of recovery after a slow January, but uncertainty over the war in the Middle East will likely shift consumer sentiment from March onward.
• Cox Automotive’s Erin Keating says that vehicles in the $35,000 to $45,000 range better absorb demand and maintain leverage. Mid-market vehicles ($45,000 to $55,000) continue to carry excess supply and face margin risk. 
• For buyers, the situation hasn’t changed dramatically. Prices are still seeing steady, modest increases, but incentives can help ease the burden.

If you’re in the market for a new vehicle, prices remain high. In February, the new-vehicle average transaction price (ATP) was $49,353. Higher ATPs suggest that buyers are selecting more expensive versions from available vehicle inventory. Sales incentives did show a modest increase in February, but remained relatively flat compared to this time last year. Instead of marketing broadly, manufacturers and dealers are using incentives to address specific pockets of inventory.

In February, incentives were strongest for luxury vehicles and compact SUVs, so buyers in those markets may find favorable offers. Otherwise, the situation for new vehicles has not changed dramatically. The story taking shape in the pricing landscape is about pricing bands rather than overall averages. When you remove pricey full-size pickups from the equation, the average is closer to $39,000.

With conflict overseas affecting U.S. fuel economy, we’ll also see rippling effects in other areas of life. With costs rising across the board, consumer sentiment toward new vehicles could cool in the coming months. What does that mean for car buyers right now? Read on for expert insights into what’s driving the current trends and what you need to know if you’re planning to start your search or buy a car now. 

• New Car Prices Continue Modest Increases
• New Car Inventory Update
• Shop Around for the Best Offer on Your Trade-in
• The Higher Costs of Car Insurance
• What to Expect: Looking Ahead

New Car Prices Continue Modest Increases

Sales slowed in January of this year, but saw some recovery in February. The new vehicle average transaction price (ATP) was $49,353 in February, up 0.3% from January’s average and up 3.4% year over year. “A 3.4% ATP increase in February stands out, but it’s not out of character when you put it in context,” explained Cox Automotive Executive Analyst Erin Keating. “Outside of the ‘everything was broken’ phase, when prices were rising at a 13% clip, the industry’s long‑run average is closer to 3%. What we’re seeing now looks more like normalization than a new pricing problem.”

Incentives increased modestly in February, with an average incentive package equal to 6.9% of ATP. This was an increase from 6.5% in January. Last year at this time, the average incentive package equaled 7.0% of ATP. “Softening sales have not forced widespread discounting. Instead, manufacturers and dealers respond selectively, using incentives to address specific inventory pockets rather than the market broadly,” said Keating.  

“February reflects a bifurcated market weighed down by mismatched supply and demand. National metrics remain stable, inventory is leaner year over year, and pricing discipline is intact,” said Keating. “But beneath the surface, the mainstream market struggles against inventory imbalances it has yet to fully resolve.”

It’s important to remember that volume-weighted ATP reflects all market realities, including high-volume vehicles like pricey pickup trucks, which can influence the number. For example, full-size pickups averaged $66,157 in February, a 2.9% year-over-year increase. “Not every vehicle is a $50,000 purchase,” reminded Keating. “Most of the volume still sits in segments priced below the industry average. The top five segments come in at around $44,000 on a weighted basis, and pickups account for a big share of that. Remove expensive full-size pickups, and the average is closer to $39,000, which tells a very different affordability story.”

The Electric Landscape Continues to See Headwinds

Electric vehicle (EV) sales continue to meet rougher waters, totaling an estimated 68,951 units. This number is down 26.8% year over year but is up 5.8% month over month, with EVs accounting for 5.8% of total new vehicle sales. Tesla headed the pack with 38,500 units sold, 4% lower than January. Hyundai, Chevrolet, Toyota, and Cadillac followed it.

Inventory levels tightened from January, and prices were pushed lower across both new and used segments, highlighting a market increasingly driven by affordability and demand alignment. Days’ supply for new EVs fell to 130 in February, down 27% month over month but remaining 23.7% above this time last year. Ford and Chevrolet held the heaviest supply, while Toyota and Mercedes‑Benz showed leaner inventory levels.

February underscored the EV market’s new reality, with new EV sales sharply lower year over year and used EV momentum continuing to build. Inventory levels tightened from January and prices were pushed lower across both new and used segments, highlighting a market increasingly driven by affordability and demand alignment. EV prices edged higher to an estimated $55,300 in February, down 1.4% year over year. February also saw the narrowest EV premium over ICE+ on record, at $6,532. Incentives reached an average of $7,870 or 14.2% of ATP, up from 12.4% in January. Tesla and Kia posted month-over-month EV ATP gains, but Cadillac, Ford, and Chevrolet recorded the largest declines.

“As the EV market enters the spring selling season, it appears to be moving through an ongoing normalization phase, with manufacturers and retailers still working to identify sustainable, natural demand levels,” said Cox Automotive Director of Industry Insights Stephanie Valdez Streaty. “A wave of new EV launches in 2026 could broaden consumer choice and support volume growth beyond the current top brands. Rising gasoline prices may also increase consideration for EVs among shoppers weighing total cost of ownership.”

What Drives New Car Prices

New Car Inventory Update

Dealerships track the number of new vehicles they have on hand to sell using a metric called “days’ supply,” or how long it would take them to sell out at today’s sales pace if they stopped adding new vehicles. According to Cox Automotive’s vAuto Live Market View, new-car inventory is showing a widening divide according to price band. Vehicles priced between $35,000 and $45,000 are outperforming the market, and carry the least inventory at about 81 days’ supply. Toyota and Honda have the tightest days’ supply at 41 days and 59 days, respectively. Nissan at 98 days and Kia at 89 days round out the most competitive manufacturers when it comes to pricing power, as dealers demand more stock from them, not less.

In contrast, the $45,000 to $55,000 range represents the mid-range band and the weakest inventory efficiency, with an average supply of about 120 days. Ford and Jeep sit at 121 days and 151 days, respectively. Jeep’s days’ supply has grown to 151 days from 123 days, an increase of 28 days year over year.

“Vehicles in the $35,000 to $45,000 tier absorb demand and maintain leverage, while the mid-market tier carries excess supply and faces margin risk,” said Keating. “For dealers, February’s lesson is less about volume and more about alignment. Where inventory matches real demand, the market functions well. Where it does not, adjustment is underway and will likely accelerate as spring demand either materializes or fails to arrive.”

What does this mean for shoppers? With cars in the lower band seeing significantly lower inventory levels, it may be harder to find them in your area and dealers may drive a harder bargain due to competition. It may be tempting to raise your budget or pursue different financing options in the face of these challenges, but we urge caution before doing so. Search for incentives and expand your shopping boundaries to find the right deal for your budget. Low-interest-rate offers and lease deals may be available for qualified buyers as dealerships continue to make room for newer inventory. 

Shop Around for the Best Offer on Your Trade-in

Trade-in value is another factor driving car prices. A lack of used-vehicle stock has kept those prices higher, giving credence to the idea that buying a new vehicle can sometimes be cheaper than purchasing a certain used model, only a few years old. As a result, it’s still a great time to trade in your car. 

Dealers value your trade-in partly based on what they need in stock, so if you have a popular model, you may be in luck. On the other hand, they’re more likely to offer an excellent deal to buyers on a car that fewer people are currently looking for. In other words, a car shopper trading a 2018 Honda Civic for something else will be much happier with the trade-in appraisal than a shopper with a 2021 Jeep Grand Cherokee. 

Car buyers should prepare to shop their trade-in around. It’s slightly more complicated to pull off, but selling your old vehicle to one dealership and buying your new car from a different one may make sense if the final invoice numbers work out in your favor. Use the Kelley Blue Book Instant Cash Offer tool to shop your trade-in vehicle at nearby dealerships. When you let the deals come to you, selecting the best trade-in offer for your situation is easier. Remember, you can always negotiate the offer, and pitting one offer against the other is not unheard of when shopping around for a vehicle. 

The Higher Costs of Car Insurance

Tariffs on imported cars and car parts have pushed insurance rates higher, even as car owners are already stretched to the limit by insurance costs. However, this sharp upturn in cost slowed in February. According to the Bureau of Labor Statistics, car insurance costs were 0.2% higher in February than a year earlier. By comparison, in September of last year, these rates were 3.1% higher year over year. Bankrate says the average cost of car insurance is $2,697 per year for full coverage. Full coverage, called comprehensive car insurance, covers natural disasters like wildfires, hurricanes, floods, and accidents. Before you seal the deal and sign anything for a new vehicle, compare quotes for car insurance. 

What to Expect: Looking Ahead

New car inventory in February rose 2.4% month over month but is down 1.6% year over year. Early February numbers showed the number of available new vehicles in the U.S. hitting 2.85 million units, or 92 days’ supply. This is a 4.4% year-over-year supply decline, but an inventory volume increase of 4.1% month over month (from 2.74 million units). These trends align with a typical seasonal pattern as dealers build inventory in anticipation of higher springtime demand.

Automakers still contend with tariffs, and now, an intensifying conflict across the Middle East, suggesting a continuing need to balance steady inventory management with smart pricing. This is easier said than done as the market contends with stubborn inventory imbalances.

For buyers, the situation has not shifted significantly one way or another. Options in lower pricing bands remain limited, though careful shoppers can still locate incentives that can help lighten the financial burden. The coming months will reveal more about the war’s overall impact.

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What to Do if You Need a Car Now

Incentives are a buyer’s best friend in this current market. If you can adjust your expectations about the type of car or brand you are willing to buy, there may be some good deals available. Beyond that, prices remain on a steady, modest increase. Before buying: 

• Research your options and expand your boundaries if needed.
• Look for deals and incentives, especially on inventory that dealers may be trying to offload to clear room for newer incoming models.
• Shop ahead for a car loan if you’re not paying cash.

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Editor’s Note: This article has been updated since its initial publication.