
When Will Car Prices Drop?
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If you’re in the market for a new set of wheels, things are finally looking up—at least a bit. New car prices have come off their recent peaks as auto market inflation has eased, though they remain historically high due to elevated interest rates and continued supply limits.
Meanwhile, limited price drops are also being seen in the used car market, but restricted inventory caused by years of elevated new car prices means savings in this sector are limited so far. Read on for the lowdown on what auto prices are likely to do in the near future.
What Happened in 2024
It’s been a tough couple of years in the automotive industry. First, the pandemic and computer chip shortage disrupted global car manufacturing supply chains, causing new vehicle prices to spike. Then higher inflation and soaring interest rates made the auto loan market an even more unfriendly place for buyers.
The good news is that many of these factors have now begun to ease, allowing new car prices to fall as more cars are made. The not-so-good news is that while interest rates have softened a little, they remain far higher than before, so young buyers are still going to pay more for their new first wheels than their lucky older brother or sister did in the “good old days.”
The pandemic and high inflation hangover also continue to weigh on used car markets. With much of the available inventory wiped out when new car prices spiked, used cars are now relatively scarce and owners are tending to hold onto their used wheels longer as high interest rates make acquiring a new auto loan more expensive.
While prices have come down substantially, high interest and insurance rates are continuing to put the brakes on potential savings on used cars. Here’s how the numbers break down for new and used vehicles, as well as for electric and hybrid car markets.
New Cars
The latest figures paint a gradually improving picture for new car buyers that looks likely to persist through 2025, provided inflation stays under control. Data collected by Cox Automotive (publisher of the Kelley Blue Book) showed prices were a full 5.4% lower than the market peak in December 2022.
Over the last few years, consumers have become accustomed to relentless price increases for new vehicles. The Cox Automotive data showed the average cost of a new car transaction was up more than 15% over pre-pandemic levels, with the average new car now costing consumers more than $40,000.
These limited gains are backed up by data from the U.S. Consumer Price Index, which showed new car prices just 0.1% lower than they were a full year ago. However, persistently high prices did not seem to be slowing demand. Cox Automotive reported new car transactions were also up more than 15% from levels three years ago.
The current outlook is for new car prices to fall gradually throughout the remainder of the year but with savings limited in the absence of substantial decreases in interest rates.
Used Cars
At the end of March, the average price paid for a used car was $25,540 which was 4% lower than a year ago, according to Cox Automotive. This reflects lower inflation in the economy as a whole.
However, higher interest rates on car loans apply here too, along with the fact that increased demand for used cars and lower new car production in the early part of this decade mean there is essentially a missing “generation” in used car inventory.
Used car rates decreased slowly this past year and will likely continue to in 2025 unless there is a major change in the interest rate outlook, while long-term market factors will continue to mean a used car will cost significantly more than it did a few years ago
Electrics and Hybrids
Surprisingly, electrical vehicle (EV) sales hit the brakes hard in 2024. First quarter EV sales in the U.S. were just 2.6% more than in the same period in 2023. That might be good growth in a mature market, but it’s actually a tire-squealing slowdown from the 46.5% growth in EV sales between the first quarters of 2022 and 2023, Cox Automotive reported.
What happened to a market that was supposed to continue to see exponential growth? It appears that the market ran out of early adopters who were prepared to pay the EV premium that Tesla, in particular, charged for their technology.
Tesla’s market share has begun to drop in the U.S. where compelling offerings from established automakers have started to take up the slack, but more potential buyers are preferring to take a “wait and see” approach to EVs, even though prices continue to fall dramatically.
U.S. consumers remain wary of the range and limited refueling options for EVs, despite rapid improvements on these fronts. Many still prefer the flexibility offered by a wide range of hybrid offerings.
The Bottom Line
While the conditions are good for the prices of both new and used cars to come down, continued high interest rates have spoiled the party for would-be drivers. In short, while cars are now cheaper and more available than they were a year ago, the cost of auto financing remains near the highest levels in recent memory.
What Can You Do About It?
There are a couple of things you can do in response to continued high financing prices. One alternative is to keep your current vehicle in use longer by taking better care of it. Here are some low-cost ways to get more mileage out of your current car:
Use a trickle charger to keep the battery in excellent condition
Change your filters regularly
Follow the service schedule; most cars need to be serviced every 10,000 miles
Keep all fluid levels high, including coolant, oil, antifreeze, and windshield washer fluid
Drive carefully to avoid sudden braking to prolong the life of your brake pads
Check your tires regularly; rotate and inflate them as needed
Pay attention to all warning lights that are illuminated on the dashboard and address issues quickly
You can also do more to keep your creditworthiness in check. This will make it easier for you to qualify for financing when you are ready to buy a car and should allow you to negotiate a lower annual percentage rate (APR) and lower monthly payments on your loan.
Access your credit reports and review them for outdated or inaccurate information
Pay bills and interest payments on time; missed payments will show up on your report
Pay down high-interest debt on credit cards, personal loans, and other borrowings
Avoid taking out new loans and limit credit inquiries on your report
Keep paid-off credit cards open to improve your credit history and credit utilization ratios
Why Choose a Credit Union for Car Financing?
High interest rates mean it’s never been more important to be smart about where you get your car financing. Credit unions have long been a favorite destination for buyers looking for affordable financing. Here are the reasons why.
While car dealers work closely with their own financing houses to ensure profits remain high, commercial banks must also satisfy their own shareholders, who expect regular dividends.
By contrast, most credit unions are not-for-profit financial cooperatives owned by their members. Without the need to maximize profits on every transaction, credit unions are able to charge lower fees and share savings with members through lower interest rates on auto loans.
And it shows. Figures compiled by the National Credit Union Administration (NCUA) revealed that credit unions charged on average 0.55% less on APRs on a standard 48-month new car loan and more than 0.76% less on standard four-year used car loans than commercial banks, based on national average rates.
As member-owned co-operatives, credit unions are also deeply invested in the long-term success of their members. This is reflected in the additional care credit unions like Listerhill take to understand our members’ individual financial goals and to tailor products to their needs.
Get Your Wheels Sooner With Listerhill Credit Union
At Listerhill Credit Union, we understand how important owning a car can be to get where you are going in life. Owning your own vehicle gives you the freedom and flexibility you need to get to work, school, or simply run daily errands.
That’s why we offer our members auto loan options designed to make car ownership as easy and affordable as possible, including:
Competitive, low interest rates
No application fees
Flexible payback options
No money-down options for qualified borrowers
Convenient application process and payment options
Contact us today or click below to learn more about how Listerhill auto financing can get you moving sooner.
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