New-vehicle affordability declined in December, according to the Cox Automotive/Moody’s Analytics Vehicle Affordability Index. Lower interest rates, higher incentives, and increased incomes could not offset the impact of higher prices.

Last month, new-vehicle average transaction prices (ATPs) were $49,740, an increase of 1.3% year over year and 1.5% higher than in November 2024, as measured by Cox Automotive’s Kelley Blue Book. December typically sees an uptick in sales by luxury vehicle makers and, in general, for higher-priced vehicles, which is why industry average transaction prices usually peak in December. The all-time high for transaction prices was in December 2022, when new-vehicle inventory was beginning to recover from historic lows and ATPs hit $49,958.

“In December, new vehicles were only slightly less affordable than in the previous month,” said Jonathan Smoke, chief economist at Cox Automotive, in a Jan. 15 news release. “The December index increased by 1% from November 2024, aligning with typical seasonal patterns. Higher prices pushed the average monthly payment to a six-month high. However, we expect vehicle affordability to improve in 2025, driven by lower interest rates and increased incentives.”

Loan Rates Decline Slightly

The estimated average auto loan rate declined in December by 36 basis points to 9.8%, the lowest average rate in 18 months. Higher incentives and a 3.6% year-over-year income growth somewhat softened the impact of rising prices.

The typical monthly payment in December rose 1.4% to $756, the highest level in six months. However, the median weeks of income needed to purchase an average new vehicle increased to 38.2 weeks from a downwardly revised 37.8 weeks in November. The average monthly payment had previously peaked at $795 in December 2022.

In December, new vehicle affordability was better than the previous year, when it took 40.6 weeks of median income to buy an average new vehicle, which was 5.9% higher.

Luxury Vehicles Pull Prices Higher

Recent data suggest that about 4.4% of total industry sales in a given month, or roughly 60,000 units, are for deals over $80,000. Last month, Kelley Blue Book estimated that about 84,000 vehicles – or 5.6% of total sales – transacted at prices higher than $80,000, the highest volume ever. This category includes the Land Rover Range Rover, Cadillac Escalade, BMX X7, GMC Yukon, and Tesla Cybertruck. 

Also pulling ATPs higher were robust sales of full-size pickup trucks, with an average price of $64,261. Segment volume was 223,293 units, according to Kelley Blue Book estimates, the highest point since 2024.

Brand Price Changes Year Over Year

In December, many brands posted ATPs well below year-ago levels. Year over year, Mitsubishi ATPs were lower by more than 12%. Buick and VW vehicles also transacted at a lower rate last month than in December 2023, by 7% and 6%, respectively. Stellantis’ major brands – Chrysler, Dodge, Jeep, and Ram – posted notable ATP drops compared to year-ago levels as the company works to reduce elevated inventory levels. Chrysler and Dodge brand prices were both down 4.3% year over year; Jeep prices were lower by 6.3%, and Ram prices were lower by 1.6%.

Other brands saw notable year-over-year gains at the end of 2024. Cadillac ATPs were higher in December by nearly 13% compared to year-earlier levels. Telsa prices were higher by 10.5%, and Infiniti transaction prices increased by 8.1% yearly to $65,667.

Electric Vehicle Prices Moved Higher in December, While Incentives Remain Elevated

Sales of EVs were strong in December as well, and an average transaction price of $55,544 helped push the industry-wide ATP higher. The December ATP for an EV was higher yearly by 0.8%, slightly below the industry average, and higher monthly by 1.1%.

Incentives for EVs remained elevated in December, although they were lower month over month at 14.3% of ATP, down from 14.7% in November. EV incentives were higher by 41% yearly and have been above 12% of ATP for six months. Strong sales incentives, which averaged more than $6,700 per sale in 2024, were one reason EV sales surpassed 1.3 million units last year, a new record for volume and share.