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Another month, another new record for car prices. In July, new car prices climbed 0.3% higher, and the average monthly payment increased by 0.9%. Used car prices have decreased at the wholesale level for eight weeks, but new car prices remain at record highs as dealer inventory stays slim. Here’s the latest new car price data from Cox Automotive, what it means for new car prices in August, and our best guess as to when new car prices may finally start to come down.
The Average New Vehicle Transaction Approaches $50,000
Source: Cox Automotive/Moody’s Analytics
The average transaction price (ATP) for a new vehicle increased by 0.3% in July to a new record of $48,182, according to the latest Kelley Blue Book transaction price report. Year-over-year vehicle price increases are astounding. Since July 2021, the average new vehicle transaction has increased 11.9%, or $5,126. Looking back two years to the heart of the pandemic slump, the average new car transaction price is up 21.5% since July 2020. Worse yet, the ATP is up 58% over a decade. In 2012, the average transaction price was near $30,000.
Why are new car prices still going up? Rather than the prices themselves increasing substantially in July, other factors are largely responsible for the new record. The average interest rate increased another 19 basis points last month. The average auto loan interest rates across all credit profiles are 3.86% for new cars and 8.21% for used cars, according to data from MarketWatch. Gone are the days of zero percent interest rates, and the Federal Reserve will likely hike rates higher to get a handle on inflation.
Another factor contributing to record high average transaction prices is the popularity of luxury vehicles. Luxury vehicle share remains historically high, pushing the average ATP higher. The post-pandemic ‘K-shaped recovery’ has resulted in divergent economic situations from one household to the next. One family might be struggling to make ends meet, while the other is more well off than ever before. This trend has contributed to a surprisingly healthy luxury vehicle market, and more consumers willing to pay a premium for a new car in 2022.
Monthly Payments Surpass Rent For Many
The average monthly payment for a new car is now $733/month. That’s a new record, and it’s just a hair above June’s previous record of $730. Nationally, median one-bedroom rent is now $1,450, which is 11% higher than a year prior. In several Midwestern and Southern states, the average car payment is now on par with rent. We’ve never seen this before.
Cox Automotive’s Vehicle Affordability Index really puts this in perspective. The Vehicle Affordability Index is driven by the consumer’s vehicle transaction prices, the income of the consumer, amount financed by the consumer, and the interest rate provided by the lender. The result is a value that represents the number of weeks of the median household income in America that would be needed to buy the average new vehicle.
The number of median weeks of income needed to purchase the average new vehicle in July increased to 42.2 weeks from a downwardly revised 42.0 weeks in June. In other words, the average new vehicle purchase costs as much as 42 weeks of median income in America. Financial advisors generally recommend keeping total car expenses below 20% of monthly income, but very few Americans are able to do that today. With an average monthly car payment of $733, monthly income would need to be AT LEAST $3,665 to achieve this.
New-vehicle affordability in July was much worse than a year ago when prices were lower, incentives were higher, and rates were much lower. The estimated number of weeks of median income needed to purchase the average new vehicle in July was up 15% from last year. One year ago, auto interest rates were near record lows, incentives still existed, and prices were 11.9% lower.
New Car Inventory Improves, But Only Slightly
In July, some automakers had improved inventory. Some, such as Ford and Toyota, had the greatest increases in inventory in several months. Still, with order backlogs and demand far exceeding supply, dealer lots remained nearly empty, and car prices remained high.
New Car Prices Will Stay High For the Remainder of 2022
New car prices will fall once automakers are able to produce more vehicles. What needs to happen for vehicle production to increase? Supply chain disruptions must come to an end once and for all. We’ve been watching automakers ration their supplies of semiconductor chips, wire harnesses, and even electric vehicle batteries as the pandemic and the war in Ukraine continue to disrupt supply chains.
There is now a question as to whether automakers will ever go back to their old ways of over producing vehicles and discounting them well below MSRP. They now see that consumers are willing to pay higher prices for cars, and that’s good for their bottom lines. As long as people agree to pay marked up prices, there will be no incentive to bring prices back down to historical norms. Many in the industry see this as the only path forward, given today’s market conditions.
A Used Car Might Be the Better Value in 2022
Wholesale used car price trends, August 2022. Source: Black Book
There is a bit of a silver lining. For eight weeks in a row, we’ve been tracking steepening declines in wholesale used car prices. We can confidently say that a trend has emerged. At auction, used car prices have dropped about 4% in two months. We expect these declines to soon translate to retail used car prices, and at the very least, dealers will be willing to negotiate a deal. Based on past trends, we expect retail used car prices to begin to decline in September. Don’t hold your breath, a used car might be the better value in 2022.
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The Inflation Reduction Act of 2022 has thrown a wrench in the EV buying plans of many. Just three weeks after we first heard word of this deal between two Senators, it has been signed into law. Time is of the essence if you’re on the fence about an EV purchase! But don’t run out to buy that shiny new Tesla Model Y just yet. The language of the Inflation Reduction Act’s ‘Clean Vehicle Credit’ details requirements and important dates that you need to know about before signing a contract to purchase.
If buying an EV in America is in your future, here’s what you need to know today.
What’s In the New EV Tax Credit? Income Limits and Several New Eligibility Requirements
These are the big changes to the EV tax credit:
For new vehicles, income is capped at $150,000 for individuals, $225,000 for head-of-household, and $300,000 for families (effective January 1, 2023).
The original 200,000 sale cap is removed on January 1, 2023. Tesla and GM will again be eligible.
To qualify, vehicles must have ‘final assembly’ in the U.S., Canada or Mexico.
The new credit is worth up to $7,500, with $3,750 from at least 50% of battery components being produced in the U.S. or Free Trade Agreement countries, and an additional $3,750 if at least 40% of battery minerals originate in the U.S. or FTA countries. These battery sourcing requirements begin when the rules are finalized by the IRS, which must be before December 31.
Beginning January 1, 2024, this incentive becomes available as a point-of-sale rebate.
A used EV tax credit begins January 1, with the lesser of 30% of the selling price or $4,000 available for used EVs purchased from a dealer and costing less than $25,000. Income is capped at $75,000 for individuals, $112,000 for head of household, and $150,000 for joint filers.
Tesla and GM: Wait Until January 2023 to Take Delivery
If you’re considering buying a Tesla Model Y, Cadillac Lyriq or Chevrolet Bolt, wait until January 1, 2023 to make the purchase. The revised EV tax credit removes the 200,000 sale cap for automakers on January 1, 2023. The 200,000 sale cap had previously disqualified Tesla and GM EV models from the original $7,500 EV tax credit.
Why only the Model Y? The Model Y is the only Tesla that will qualify for the new tax credit because of the price caps. The revised EV tax credit caps SUV and truck prices at $80,000, and sedans at $55,000. The only Model 3 under the price cap is the rear-wheel drive Model 3, but it sources batteries from CATL in China, so it is disqualified. The Model S and Model X are far too expensive. The Model Y is the most popular EV in America, so this is still good news for Tesla.
Ford currently makes the Mustang Mach-E in Mexico with batteries from LG Chem (now LG Energy Solutions). LG manufactures these battery cells in Poland, but the battery pack assembly is in North America. It’s unclear if Ford’s battery assembly meets the 40% battery component requirement. Unfortunately, Ford just signed an agreement with Chinese battery manufacturers CATL to supply batteries for upcoming Ford Mustang Mach-E’s. This may disqualify the automaker briefly, but not for the time being. Ford has already announced plans for two battery plants in Kentucky and Tennessee.
Does the F-150 Lightning qualify for the new EV tax credit? Yes, but it depends on where exactly the batteries are sourced from. Ford has said that is sources many F-150 Lightning battery packs from SK Innovation’s factory in Georgia, USA. That’s great for eligibility. However, Ford recently shared that they are sourcing more batteries for the Lightning from Chinese automaker CATL. That could complicate eligibility.
Most F-150 Lightning trim options that include the Extended Range battery (for 320 miles of EPA-rated range) are near or over the $80,000 price cap for trucks. Check your vehicle build specs and pricing to see if your total MSRP is under the $80,000 limit.
If yousecured a written binding contract to purchase before the bill was signed, you could claim the original $7,500tax credit when you file 2022 taxes.
In summary, most Ford electric vehicles will likely qualify for at least half of the new EV tax credit, which would be $3,750. Of course, this depends on battery sourcing. It’s possible that Ford EVs could eventually qualify for the full $7,500 once we know more about where Ford’s battery suppliers source their minerals.
EV Models Manufactured Outside of North America Have Lost Eligibility
The IONIQ 5 won’t qualify for the new EV tax credit until Hyundai opens the new factory in Georgia. That could take two years.
Many of today’s best electric vehicles are made overseas for now. The Kia EV6, Audi etron, Polestar 2, and my own Hyundai IONIQ 5 are all disqualified due to the Made-in-America requirement.
The language of the bill states that as soon as it is signed into law, EVs that do not have final assembly in the United States, Canada or Mexico will lose eligibility. The bill was signed on August 16, 2022.
The ‘Transition Rule’ in the new EV tax credit allows buyers to claim the original $7,500 EV tax credit if the buyer has signed a “written binding contract” BEFORE the Inflation Reduction Act of 2022 was signed into law.
The new bill states that the new used EV tax credit will take effect January 1, 2023 as a tax credit, and it will become refundable at the point of sale starting on January 1, 2024. There are STRICT limitations, however.
To qualify for the used EV tax credit, the vehicle must meet the following qualifications: cost less than $25,000; be at least 2 years old; and sold by a qualified dealer. Buyer income limits are an adjusted gross income of $75,000 for individual tax filers, $112,000 for head of household, and $150,000 for joint filers. Taxpayers are allowed one used EV credit every 3 years.
This Is A LOT to Take In
It’s a wild time to be in the market for an EV. Did we miss something? Let us know in the comments, or better yet chat with our EV and general car buying experts at the CarEdge Community Forum. You can also email me at justin@CarEdge.com. This is an evolving situation!
Each day we get asked, “When will car prices drop?” Fortunately, today we have good news to share; used car prices are starting to fall as you’re reading this.
At wholesale auctions, used car prices have dropped for seven weeks in a row. This week’s wholesale declines were so steep that the analysts at Black Book said it was reminiscent of declines seen at the start of the pandemic. If wholesale used car prices are dropping so much, why haven’t we seen an equally steep decline in retail prices? Well, we are just starting to.
In today’s turbulent world, there’s only so much we can confidently assume when drawing connections between the automotive market of the past and present. But the data is still useful. By taking a look at similar trends from years past, we can start to understand when retail car prices are likely to drop, which vehicles are likely to drop the most, by how much, and how you can approach negotiations.
Let’s dive in.
Retail Price Trends Lag Behind Changes at Wholesale Auctions
Historically, retail used car prices lag 4 to 6 weeks behind wholesale prices. We started to see significant wholesale price declines in the last week of June, and more so by mid-July. Take a look at the last 8 weeks of wholesale car prices:
+0.10% the week of June 20
-0.02% the week of June 27
-0.15% the week of July 4
-0.35% the week of July 11
-0.45% the week of July 18
-0.47% the week of July 25
-0.86% the week of August 1
-0.89% the week of August 8
Since early July, wholesale used car prices have dropped -3.19%, and some vehicle segments are down more than 5%. You may be asking why retail prices haven’t started dropping if wholesale prices started their downward trend seven weeks ago. Until the week of July 18, the wholesale declines were slight. Basically, they were within the ‘margin of error’, and the change wasn’t yet large enough to draw any big conclusions. When we started to see declines of -0.45% to -0.89% in a single week, that was the surefire indication that the price drop is real, and the bubble may even be bursting.
If used car prices are on track to follow a trajectory similar to what was seen when prices dropped in 2008 and 2020, we’d expect to see real declines 4 to 6 weeks after the start of significant declines. So when did the clock start? Conservatively, the first week of August was the first week of major declines. Wholesale used car prices dropped -0.86% last week alone. Looking ahead, we can expect retail used car prices to drop meaningfully starting in early- to mid-September. This coincides with a likely increase in repo cars that will also drive used car prices lower too.
While advertised retail prices may not be lower (why would a dealer drop their advertised price if they can find a customer willing to pay an inflated price?), we have heard more and more stories from our community of successful negotiations taking thousands of dollars off of used car deals. Negotiating on a used car is possible, and you should be encouraged to do it.
Luxury Models and Large SUVs Likely to Drop the Most
Used truck and SUV prices, August 8, 2022. Source: Black Book
The past month of wholesale data shows that luxury vehicle and larger SUV segments are on track to see the steepest price declines. Why? Their prices have been the most inflated over the past 18 months, and consumer demand for high price vehicles is decreasing rapidly. The week of August 8, every luxury segment dropped by at least -1.24% week over week. Sub-compact and full-size luxury crossovers dropped nearly 2% in just one week. Since July 11, luxury segments have seen wholesale prices drop by -5.32%, while the overall used vehicle market dropped -3.19%.
CarEdge’s Auto Experts Are Already Seeing More Deals
Our very own market researcher Mario notes that some vehicle segments are softening, but mass-market sedans and trucks are holding firm. “I’m starting to see increased negotiability with late model mid-size SUVs like the Mazda CX-9 and the luxury segment (Lexus RX, Audi Q5, Acura RDX). These segments have been softening and represent some good deals. Trucks continue holding value. I haven’t seen much change on the lower end and small sedans.”
CarEdge Auto Expert Justise also emphasized more consumer negotiating power as the first sign of a softening auto market. “ Luxury and non-hybrid vehicles are already a lot more negotiable than they were last month. I am also seeing a lot more deals across the board without as many shenanigans like nitrogen tires, and fewer markups over MSRP. Even many Toyota & Hondas that are 2020-2021 model years are coming back down to Earth.”
Are Retail Car Prices Guaranteed to Drop?
Think about what we’ve all collectively been through over the last few years. We know better than to assume anything in this market is guaranteed! Today’s car market is unlike anything we’ve ever seen before. New car inventory remains very low, and prices are sky-high while interest rates complicate matters even more. And we haven’t even discussed inflation. So no, nothing is guaranteed, but it’s undeniable that overall market pressure is building that will most likely push dealer sales managers to adjust pricing downwards.
Another factor to take into account is that dealer sales managers are going to try their hardest to cover their losses. Those who bought severely overvalued used vehicles at auction two to six months ago are going to either stand defiantly and demand high prices, or they’ll ‘be smart about it’ and cut their losses by negotiating with prepared, knowledgeable car buyers.
CarEdge’s own Ray Shefska said it best. “The smart dealers will take their losses, and sell what they can now. Wholesale price trends are indicating that they bought overpriced used vehicles for the past several months, and they’re losing money every day they don’t sell their inventory. This could drive prices downward sooner rather than later. Smart sales managers look at pricing weekly. If cars aren’t selling quickly like they have been, that’s a sign that the market is changing.”
With such volatile changes in car prices, it has never been more difficult to know the true fair market value of a car. That being said, there are ways to answer this question!
In the old days, it was impossible to know what the real fair value of a car was. Kelly Blue Book was just that, a book. Books don’t update from week to week like used car prices do, and websites like KBB are really just meant to gather leads for dealers; their valuations aren’t a true indication of “fair market value.” How we share information has changed, but so has how we buy and sell cars. Online car dealers now account for 30% of new car sales in America, and the used car market is catching up.
With sites like CarEdge, Carvana, Vroom, CarGurus, and others, you can see in real-time what a car dealer would pay to buy a car. This is VERY valuable information for car owners, regardless of whether or not you intend to sell. More on that below.
Follow the 10% Rule
If you’re buying a used car, the 10% rule is a great way to see if you’re paying a fair price. We all know car dealers make money when they sell cars, but how much do dealers make? In 2023, the average total profit per vehicle is up to $5,138. That’s double what it was five years prior.
With dealer profits climbing all the time, how can you make sure they’re not paying too much for a used car? We like to think about the 10% rule. If a dealer has a used car for sale and you’re going to buy it, the price should be no more than 10% over what online car dealers would pay to buy the car. We consider that to be a fair price. If it’s more, try and negotiate.
This is the worst IONIQ 5 dealer markup I’ve seen!
How could you apply the 10% rule? Both new and used car listings provide the vehicle’s VIN number, mileage, trim options and condition. Using that information, you could go through the tedious process of requesting a quote from Carvana, Vroom and CarGurus. Better yet, get all the quotes in one place with CarEdge’s Valuation. Once you have an estimated value or offer, simply calculate if the value is within 10% of the dealer’s quoted price. If it is, you’re looking at a fair price. If not, it’s time to look elsewhere or put your negotiating hat on.
See Your Vehicle’s Value In Real Time
We created a new kind of online vehicle valuation tool with the goal of giving consumers a realistic, regularly updated valuation without the fluff. Our CarEdge community members tell us time and time again; drivers just want real data without gimmicks or gotchas. How does it work? CarEdge’s Vehicle Valuation takes information you share about your vehicle or a vehicle you’re shopping for, and gives you real offers from online car buyers. Using either the vehicle’s VIN number or license plate, location and your answers to simple questions about the vehicle’s condition, you get multiple offers in less time than it takes to brew a pot of coffee.
Anyone who’s traded in a vehicle knows well that dealers lowball trade-in offers so that they can turn around and sell your car for more. CarEdge’s in-house auto experts leveraged decades of dealership experience to give consumers a better way to understand what their car is worth, and how its value changes over time.
With tariffs, stubborn inflation, and stock market-selloffs, there are many factors that are dampening consumer sentiment in the United States. An economic slowdown impacts everyone, car buyers included. How will a recession impact car sales? How will car buyers be affected by a recession in 2025? Will it be the same as 2008, or are things different this time around? Let’s take a look at what history can teach us.
What Happens to Auto Sales in an Economic Recession?
For most, the mere mention of a recession is cause for cutting back, saving money and spending less. Discretionary spending, essentially spending by choice rather than by need, always plummets in a recession. For some households, discretionary spending includes that shiny new car you’ve had your eye on. For others, a car is essential for work, etc. In a recession, auto sales decline significantly as many buyers back out of the market. However, a recession in 2025 is not going to be the same for car buying as it was in 2008 and 2020.
U.S. car sales 1976-2021, Source: statista.com
New Car Sales in a Recession
New vehicle sales in the U.S. fell nearly 40 percent during the ‘Great Recession’ of 2008. Gas-guzzlers were hit the worst, and hybrid powertrains made their big break. 2020’s pandemic-driven recession was the shortest in history, lasting just two months. Even then, auto sales were down 15 percent compared to 2019.
What’s different now? Car prices have climbed for three years straight at a pace never seen before. The result? Reluctant car buyers who are more likely to patiently seek out deals. If an economic recession begins, new car prices will be forced downward by a drop in demand. With high interest rates, car dealers lose money the longer a car sits on the lot due to floorplanning costs. Not selling is never an option, meaning that incentives will mount until buyers see value.
Used Car Prices in a Recession – Should you sell now?
If you’re thinking about selling, you should decide sooner rather than later. We track used car prices weekly, and we’ve seen months of declines in both retail sales and the wholesale markets that determine trade-in values. Used car values are falling, and will continue to decline if a recession is in the cards for 2025.
The average used car listing price has fallen from an all-time high of around $28,000 in 2022 to $25,128 in March 2025. With economic worries lingering, we expect retail used car prices to fall another 3-5% through the end of the year. Those considering selling a vehicle in 2025 should assume that selling sooner will bring a high price versus waiting.
Have a Pro Negotiate For You
Have you ever heard of a car buying service? These ‘car concierge’ services are growing in popularity as drivers get fed up with the car dealership hassles. CarEdge Concierge is the best way to buy a car today. We’re independent from dealerships and automotive industry groups, meaning that we’re exclusively here to serve you.
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