Lower Incentives May Boost Dealer Profits

Dealers may see profits rise if manufacturers continue their current pricing trajectory.

New vehicle prices in June 2024 remained relatively unchanged from May 2024 and June 2023, reports Kelley Blue Book (KBB). The average transaction price (ATP) for a new vehicle in the U.S. was $48,644. That’s $266 (.6%) higher than May’s 2024 average transaction price, according to KBB.

“As we head into the back half of the year, we are seeing that automakers are showing real discipline on pricing,” says Erin Keating, executive analyst, Cox Automotive. “Even brands holding onto more days’ supply, like many Stellantis brands, are keeping incentive spend in check.”

Although the incentive decreases can be seen as positive for dealers’ bottom lines, manufacturers must maintain a delicate balance on pricing. Dealers need volume to clear their lots and maintain profits, which are drained by aggressive pricing and incentives. High interest rates and financing challenges already keep some prospective buyers away from the lots.

KBB underscores that affordability is critical. The average transaction price for a new vehicle is about $49,000; about 40% of June vehicle transactions were for below $40,000, and 26% were transacted or between $30,000 and $40,000.  Half of the top 10 best-selling vehicles sold in June had ATPs below $40,000. Those vehicles were the Toyota RAV4, Honda CR-V, Toyota Camry, Honda Civic and Chevrolet Trax.

Here's a snapshot of other KBB data:

“Anytime you speak in averages, there will be factors that can skew the big picture,” says Keating. “We know that nearly half of the market sells for well below average, so the elevated ATP doesn’t mean there are no affordable vehicles for customers. At the same time, it is often the monthly payment that really matters, so we can’t ignore the impact interest rates are having on people’s ability to pay.”  

For more information, go to the KBB website.