Affordability remains top of mind for potential car buyers and while July did not bring the price break many surely hoped for, it did provide some consistency in what’s been a whirlwind of a year. According to Kelley Blue Book, the average transaction price (ATP) for new vehicles in the U.S. was $48,841 in July, reflecting a slight 0.1 percent decline from June’s revised ATP of $48,900.
Despite this minor dip, ATPs were still up 1.5 percent year-over-year, marking the largest annual gain of 2025 so far, though still below long-term averages. Manufacturer suggested retail prices (MSRPs) displayed similar patterns. While MSRPs decreased 0.3 percent month over month, they climbed 2.4 percent year over year—again representing 2025’s largest annual increase. The gap between MSRP growth at 2.4 percent and ATP growth at 1.5 percent indicates that incentive spending helped moderate consumer price increases, though manufacturer costs continued rising at a faster pace.
“In the face of rising prices, it is becoming more evident that the new-vehicle market is being supported by pent-up demand driven largely by high-net-worth households,” said Erin Keating, Executive Analyst, Cox Automotive. “These buyers are benefiting from the wealth effect of a healthy stock market and solid wage growth since the pandemic. At the same time, automakers are providing healthy incentives to keep sales flowing. Prices are trending higher, but just as we are seeing in the broader retail markets, there’s sufficient demand and generous incentives out there, and that’s driving the market.”
Incentive Spending Reaches 2025 Peak
Automaker incentive programs expanded significantly in July, providing crucial support for sales volumes amid high prices. Average incentive spending jumped to 7.3 percent of ATP, equivalent to $3,553 per vehicle. This represented both the highest incentive level of 2025 and an increase from the upwardly revised June figure of 7.0 percent.
Higher incentive spending helps maintain affordability for consumers. It also supports inventory turnover as dealers work to clear model-year stock and prepare for incoming 2026 model year vehicles. July’s 7.3 percent incentive rate exceeded the 7.0 percent recorded in July 2024, with this increased spending likely contributing to the maintained sales momentum despite price pressures.
Luxury Brands Drive Price Increases
Premium automotive brands led the charge in price appreciation, with several luxury manufacturers posting substantial year-over-year ATP increases. Cadillac, Land Rover, and Infiniti all achieved double-digit ATP increases compared to July 2024. Mercedes-Benz, Porsche, and Lincoln recorded gains more than twice the industry average. Brands like Audi, BMW, and Genesis saw increases approaching industry norms. Acura stood out as an exception among luxury brands, avoiding the widespread price increases affecting its premium competitors.
Import tariffs particularly impact foreign luxury brands, adding cost pressures that translate into higher consumer prices. Additionally, like Keating mentioned, the luxury segment’s pricing power reflects its customer base. High-net-worth households gravitate towards luxury vehicles and possess greater price flexibility than mainstream market buyers. Even as prices increase, the customer base is able to continue to purchase the luxury vehicles thus disincentivizing any major concerns over affordability.
Volume Brands Face Price Pressures
Mainstream automotive brands experienced more varied pricing outcomes than luxury brands, with several major manufacturers recording ATP declines year over year. Jeep led declining ATP brands with a nearly 12 percent year-over-year decrease, bringing its July ATP to $47,275—the lowest level since fall 2021. This dramatic price reduction accompanied aggressive incentive spending and marketing efforts. Jeep’s incentives reached 8.1 percent of ATP, substantially higher than the 5.5 percent recorded in July 2024. The Jeep pricing strategy did yield positive sales results though, with brand sales increasing 27 percent year over year in July.
Four other volume manufacturers also posted year-over-year ATP declines. Unlike luxury buyers, volume market consumers exhibit greater price sensitivity, requiring manufacturers to balance profitability goals with market share.
Electric Vehicle Market Surges
The biggest star of July was by far electric vehicles. EV sales reached exceptional levels in July, driven by substantial price reductions and the threat of disappearing incentives. The average EV transaction price declined to $55,689, down 2.2 percent from June and 4.2 percent year-over-year. This price reduction occurred alongside dramatic increases in incentive spending, creating compelling value propositions for electric vehicle shoppers.
Tesla led the EV price decline with an ATP of $52,949, representing a 2.4 percent monthly decrease and 9.1 percent year-over-year reduction. The company’s higher production mix of core Model 3 and Model Y vehicles contributed to lower average pricing. Tesla’s monthly sales improved, though year-over-year comparisons remained negative.
Industry-wide EV incentive spending reached historic levels at 17.5 percent of ATP—a record and an over 40 percent increase compared to July 2024. The incentive surge proved highly effective in driving sales volumes. July EV sales exceeded 130,000 units, representing a 20 percent year-over-year increase and approaching all-time monthly records. This performance positioned Q3 2025 to potentially become the strongest EV sales quarter in automotive history.
Policy Changes Drives EV Urgency
The exceptional EV market performance stemmed partly from anticipated policy changes affecting government incentives. The scheduled October 1 sunset of government-backed EV incentives created urgency among potential buyers, spurring accelerated purchasing decisions.
“The urgency created by the administration’s decision to sunset government-backed, IRA-era EV incentives was expected to create serious demand for EVs in the short term,” said Stephanie Valdez Streaty, Senior Analyst, Cox Automotive. “If last month is any measure: Mission Accomplished. July sales were near an all-time monthly record. At this pace, Q3 will be the best ever and then some, as buyers jump in before the big incentives dry up.”
However, this incentive-driven surge raises questions about sustained EV demand beyond the policy transition. While current sales momentum appears strong, market performance post-October may reveal underlying consumer attitudes toward electric vehicle adoption when strong incentive support is gone.
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