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Excess inventory pushes incentives higher.Getty Images
New-vehicle incentives surged to 7.0% in July, reaching the highest level observed in more than three years and marking a significant 60% increase compared to the same period last year, according to Kelley Blue Book (KBB).
As highlighted in WardsAuto, these increased incentives have squeezed dealer profits, a trend that appears unlikely to reverse in the near term. July marked the 10th consecutive month of year-over-year price declines, KBB reports.
“While not all brands are experiencing excess inventory, where it does exist, incentives are climbing," says Erin Keating, executive analyst at Cox Automotive. “Although these heightened incentives are beneficial to consumers, persistently high interest rates and tighter credit conditions continue to pose affordability challenges. For the market to realize its full potential, a reduction in rates and a loosening of credit will be necessary.”
Financial analysts at Reuters and other prominent publications have observed that the Federal Reserve recently suggested the possibility of lowering rates, which have remained unchanged since August 2023. However, this outcome is far from assured.
Despite these economic pressures, dealers are actively seeking strategies to boost overall sales in an effort to preserve profitability. “The U.S. auto market is as diverse as the country itself,” Keating says. “There are plenty of high-end, high-profile vehicles available, yet consumers also have access to well-priced options below the industry average. Large dealers consistently emphasize this: Regardless of budget, there is likely something that can meet consumers’ needs, especially in regions where inventory is abundant and incentives are available.”
Key Insights from the Recent KBB Report:
Average Transaction Price (ATP) Stability: In July, the ATP for a new vehicle in the U.S. was $48,401. This figure remained largely unchanged from June's revised ATP of $48,424 (a slight decrease of $23) and was only $106 lower than the previous year.
Price Decline from Peak Levels: New-vehicle ATPs have decreased 3.1% since peaking at $49,929 in December 2022.
Robust Inventory Levels: Inventory levels remained robust, with 2.91 million vehicles available at the start of July, a 52% increase year-over-year. This surge in inventory continues to exert downward pressure on vehicle prices.
Impact of High Auto Loan Rates: Elevated auto loan rates have driven many consumers to either postpone purchases or seek out bargains. The Mitsubishi Mirage was the only new vehicle in July with an ATP below $20,000, though it will be discontinued by the end of the year.
Popularity of Affordable SUVs: Compact and subcompact SUVs have shown strong sales, accounting for roughly one in four vehicle sales in July. These segments benefit from incentive levels above the industry average, with ATPs at $36,621 and $29,827, respectively, which are well below the overall industry average.
Expensive Pickup Truck Sales: Sales of fullsize pickup trucks continue to drive the industry’s ATP higher, accounting for 14% of total U.S. sales in July. The average transaction price for a fullsize truck was $65,713, with incentive levels for these vehicles at 8.1%, higher than the industry average.
Top-Selling Vehicles: The Ford F-Series and Chevrolet Silverado remained the best-selling vehicles in the U.S. in July. The F-Series’s ATP exceeded $67,000, while the Silverado’s ATP surpassed $60,000.
High-Priced Electric Trucks: July brought transactions of $100,000 to two all-electric pickup trucks: the GMC Hummer EV Pickup ($111,242) and the Tesla Cybertruck ($111,018). That makes the Tesla Cybertruck the best-selling vehicle in the U.S. priced over $100,000
Rising Incentives: Average incentives in July increased to 7.0% of the average transaction price, equating to $3,383, up from 6.4% in June. This represents the most generous level observed in 2024 and a 59.1% increase compared to the same period last year when incentives were 4.4% of ATP.
EV Market Dynamics: The ATP for electric vehicles in July was $56,520, slightly higher than in June but 1.5% lower year-ov er-year. Incentive packages for new EVs in July exceeded 12% of the transaction price, the highest level in more than three years, and were significantly higher than the industry average by 73%.
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