It’s almost good news

The days of runaway vehicle price increases may be over, but that doesn’t mean cars are getting cheaper. According to Kelley Blue Book’s latest report, the average transaction price (ATP) for a new vehicle in February was $48,039 — a modest 1% increase from a year ago, but down 1.3% from January. While price hikes have slowed, affordability remains a major challenge, with incentives playing a growing role in the market.

Incentives are up, but so are prices

One of the biggest takeaways from the report is the increase in sales incentives. Automakers offered incentives averaging 7.1% of ATP ($3,392), an increase of 1.1 percentage points from a year ago. These incentives are helping offset some of the financial burden for buyers, but they’re not enough to cause a substantial dip in overall prices.

Electric vehicles (EVs) saw even higher incentives, with discounts averaging 14.8% of ATP, or about $8,162 — the highest level in over five years. Despite this, EV prices still rose 3.7% year over year, reaching an ATP of $55,273 in February.

Some automakers are using incentives to clear out older inventory. Ford, for example, has been increasing discounts on its F-150 Lightning as the company navigates a slower-than-expected EV adoption rate. Meanwhile, Tesla, which typically shuns traditional incentives, has been cutting prices to maintain sales volume in a market where many customers are displeased with CEO Elon Musk’s political actions.

The vanishing affordable car

For budget-conscious buyers, the options are shrinking. The Mitsubishi Mirage, the last new car in the U.S. with a price tag under $20,000, saw sales drop 15% from January. Reports indicate the model has been discontinued, marking the end of truly low-cost new vehicles in the U.S. Mitsubishi, which had the lowest brand-wide ATP at $30,410, and Nissan, at $32,262, are among the few automakers still offering vehicles at relatively affordable prices.

Industry experts point out that even the used car market is feeling the squeeze. The average price of a used vehicle remains historically high, with a limited supply of late-model affordable cars due to the production slowdowns of the pandemic years. Many buyers who would have traditionally purchased new entry-level cars are instead forced to look at older used models or extend their current leases.

Six-figure cars are booming

While everyday buyers struggle with affordability, the luxury market is thriving. More than 52,000 vehicles priced over $100,000 were sold in the first two months of 2025 — up from 46,000 in the same period last year. This trend highlights the growing divide in the automotive market, where high-income consumers continue to buy premium vehicles, while many average buyers are priced out.

The Range Rover led the six-figure sales surge, with over 3,800 units sold in February alone. Five years ago, only 12,000 six-figure vehicles were sold in the same period, meaning today’s number represents a fourfold increase.

Luxury brands like BMW and Mercedes-Benz continue to see strong demand, particularly for high-performance and electric models. Meanwhile, automakers such as Cadillac and Lincoln are pushing further into the premium space, with larger SUVs and new EV offerings aimed at affluent buyers.

Brand performance: Who’s up and who’s down?

Not all brands saw year-over-year price increases. Stellantis-owned brands, including Jeep, Chrysler, Dodge and Ram, saw notable declines. Jeep prices dropped more than 11% — the most of any brand — while Ram ATPs were down nearly 7%. These declines contrast with the industry trend and could indicate strategic price adjustments to remain competitive.

Jeep’s price drop is particularly notable as the brand attempts to regain market share. The Wrangler, one of Jeep’s most iconic models, has seen increased competition from the Ford Bronco. Meanwhile, Jeep’s transition to electrified models like the Wagoneer S and Recon EV could be influencing pricing strategies as the company attempts to balance innovation with affordability.

The impact of high interest rates

Another factor making new cars harder to afford is higher interest rates. Compared to February 2020, ATPs have risen 25%, while incentives have dropped 13%, and monthly vehicle sales are down 9%. With higher auto loan rates, the cost of financing a new vehicle is steeper than it was pre-pandemic, further straining budgets.

Lease payments have also risen sharply, discouraging some buyers from considering leasing as an alternative to purchasing. According to industry analysts, high money factors (the leasing equivalent of interest rates) and reduced residual values on certain models have made leasing a less attractive option than in years past. Some automakers, however, are attempting to reverse this trend by offering subsidized lease deals on select models, particularly for EVs and slower-selling inventory.

Final thoughts

While the pace of price increases has slowed, there’s little sign that vehicle prices will drop significantly in the near future. Automakers are relying more on incentives to maintain sales momentum, especially for EVs, but production costs, high demand for luxury models, and economic factors like interest rates are keeping overall prices high.

For consumers, this means that while the sticker shock of the past few years may be easing, finding a genuinely affordable new vehicle remains a challenge. Unless market dynamics shift dramatically, the ‘new normal’ for car prices may be here to stay. Buyers may need to adjust expectations, explore leasing incentives where available or consider certified pre-owned vehicles as a more viable alternative to new-car ownership.