The average transaction price (ATP) of a new vehicle in the U.S. declined slightly in January 2023 to $49,388, a decrease of 0.6% ($310) from December’s record high, but is up 5.9% ($2,768) from levels a year ago. New-vehicle inventory levels are increasing from historic lows in early 2022, but prices remain elevated, according to Kelley Blue Book.

In January 2023, the average price paid was $310 more than MSRP. A year ago, in January 2022, the average ATP was more than $900 above the average MSRP. Sales volumes last month were up year over year by more than 6% but down from December, due partly to improved supply and added fleet sales.

Incentives remain low compared to pre-pandemic years, but they are trending upwards as inventory improves. The most affordable vehicles, such as compact cars, compact SUVs, and subcompact cars, had incentives between 3% to 4%, which is above industry average. As high loan rates and continued inflationary pressures appear to impact the lower part of the market, automakers are more focused on luxury and higher-end models.

The average price for a new non-luxury vehicle in January was $45,344, a decline of $271 compared to December. The majority of non-luxury brands, including Chevrolet, Chrysler, Dodge, Ford, Honda, Kia, Mazda, and Subaru, saw ATP declines between 0.3% to 4.9% month over month in January. Toyota and Ram showed the most price strength in the non-luxury market, transacting between 2% and 5% over MSRP in January.

Strong luxury vehicle sales have been a primary reason for overall elevated new-vehicle prices. This remained the case in January when luxury vehicle share jumped to a record 19.6% of total sales, up from 18.6% in December. The high share of luxury sales helps to push the overall industry ATP higher, even though luxury ATP declined.

Mercedes-Benz and Lexus showed the most price strength in the luxury market, transacting between 1.4% to 4.8% over MSRP last month. Audi, BMW, Infiniti, Lexus, Lincoln, and Volvo showed the least price strength, selling 1% or more below MSRP in January.

The average price paid for a new EV decreased in January by $3,363 (down 5.4%) compared to December. The average new EV sold for $58,725, according to Kelley Blue Book estimates, and is still well above the industry average. The decrease in pricing was due to significant price cuts from Tesla, which commands roughly two-thirds of the EV market. Tesla’s average transaction prices decreased $5,440, down 8.4% month over month and 5.5% year over year. Tesla sales in January increased year over year by more than 30%, according to Kelley Blue Book estimates.

Incentives increased in January 2023 to 2.8% of ATP, compared to 2.7% in December. In January 2021, before the new-vehicle inventory decline, incentives averaged 8.6% of ATP, according to Kelley Blue Book estimates.

Luxury cars had the highest incentives in January at 6.2% of ATP. Vans and minivans had the lowest incentives, with less than 1% of ATP.