The price of a new car continued its decline over the past year in February.

An analysis by Kelley Blue Book released March 11 found new-vehicle transaction prices (ATP) was down less than one-tenth of 1% from the revised January figures.

The average transaction price of a new vehicle in February was $47,244, down 2.2% from a year ago and down 5.4% from the market peak in December 2022.

Erin Keating, executive analyst for Cox Automotive, offered that downward price pressure and higher incentives appear to be key drivers of the market’s current momentum as new-vehicle inventory continuing to rise in the U.S.

Affordability Challenges

At the start of February, new-vehicle inventory in the U.S. stood near 2.6 million units, a 50% increase from one year earlier. Sales last month picked up from January and, with a seasonally adjusted annual rate (SAAR) of sales of 15.8 million, kept 2024 on track for the best new-vehicle sales year since 2019.

But Keating warned that while potential car buyers may be happy prices are coming down marginally for the moment, affordability is still challenging the U.S. market as new-vehicle prices are still nearly 14% higher compared to February 2021.

“Most shoppers have not seen their incomes increase as quickly as vehicle prices, so affording a new vehicle remains difficult,” she said in a press statement. “We should also note that despite rising inventory, which is good for consumers, the levels are muted, not alarming.”

Move Towards Luxury Vehicles

While vehicle price increases have slowed in the past year, the industry’s vehicle mix and shift toward luxury has tilted the U.S. auto market away from affordability.

To that end only nine of the roughly 275 different models available in the U.S. market had transaction prices below $25,000 and only two transacted for less than $20,000. In February 2021—three years ago—there were 29 vehicles with transaction prices routinely below $25,000, including eight different models transacting below $20,000.

This has results in a new marketplace with 30 different vehicles posting an average transaction prices in February of over $100,000—the Mercedes G-Class on top with an ATP of $203,154.

The February Kelley Blue Book report shows that significantly more vehicles in the U.S. transact at prices above $75,000 (sales of more than 81,000) than below $25,000 (nearly 52,000).

Incentives Rising

New-vehicle incentives rose to an average of 5.9% of transaction price, up from 5.7% in January and nearly double the February 2023 average (3.1%).

KBB analysis highlighted that luxury vehicle incentives continue to be more generous than non-luxury. In February, incentives in the luxury market averaged 6.1% of ATP, down from January but nearly twice the level seen one year ago. The luxury ATP in February was $61,424, an increase from January. Incentive packages continue to be highest with Infiniti, Audi, Mini, and Polestar, all over 10% of average transaction price,

Non-luxury vehicle incentives averaged 5.9% in February, an increase from 5.5% in January. Non-luxury vehicle ATPs last month were $44,052, generally unchanged from January, when prices were estimated at $44,062.

EV Market

As for the electric vehicle (EV) market, the average price in February was $52,314, down from a revised $54,863 in January, according to Cox Automotive and Kelley Blue Book estimates. EV transaction prices in February were lower year over year by 12.8%.

Stephanie Valdez Streaty, director of Industry Insights at Cox Automotive, summarized that research continues to show that price remains a significant barrier for consumer adoption.

“While the higher inventory levels and increased competition continue to drive down the price premium of EVs, it’s important to acknowledge that EVs remain priced above mainstream non-luxury vehicles by nearly 19%,” said Valdez Streaty.

The market’s general EV price decline has been led in part by the Tesla Model 3 and Model Y, the top sellers ion the market. The price of the Model Y last month was $49,363, the lowest on record and down 16.2% from a year ago.

The Model 3 transaction prices last month, at $43,614, were lower year over year by 12%. High incentives and discounts on most models continue to play a major role in lower EV prices, according to KBB officials.