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Falling Incentives, Tougher Loan Conditions Make It Tougher to Buy a New Car

by | February 11, 2025

While new vehicle sales were up on a year-over-year basis in January, it wasn’t because automakers or lenders made it easier on buyers, according to new data released this week. The average transaction price rose 1.3% compared to last January.

New car sales rose in January on a year-over-year basis, despite buyers facing some headwinds.

New vehicle sales finished 2024 on a high note, setting the bar for January high as well. New car fever had Americans in its grip because, despite higher prices, lower incentives and tougher loan conditions, new vehicle sales rose 5.1% on a year-over-year basis.

The average transaction price (ATP) in January increased year over year by 1.3% to $48,641. A year ago, the new-vehicle ATP was $48,031.

“After a surprisingly hot December, both new-vehicle sale volume and prices were lower in January as the market took a seasonal breather,” said Erin Keating, executive analyst, Cox Automotive.

“Notably, Jeep brand ATPs in January were lower year over year by almost 9%, as the storied make continues to manage a perceived price challenge. In fact, Jeep ATPs in January were close to $49,000, not far from the industry average, and the lowest point in more than three years.”

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The average incentive spend by automakers fell 12% from December to $3,486 per vehicle.

Buyers were still interested in new vehicles in January, escaping a post-Christmas hangover — sort of. As is usually the case, January’s sales numbers were way down compared to December, when folks often look to take advantage of holiday deals from automakers looking to move metal at year’s end.

Automakers didn’t really help much as the average new vehicle incentive fell 12% to $3,486 compared to December. Additionally, there were fewer vehicles on dealers’ lots to choose from as well. According to multiple sources, there were less than 3 million vehicles available in January, the first time inventory was that low in four months.

Lenders were enjoying plenty of interest, and the number of auto loans issued were up 2.9% compared to last January. However, buyers had to work to get a loan, and it likely cost more than it did a year ago.

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Tougher loans

New vehicle inventory levels were below 3 million units for the first time in four months.

In January, the approval rate decreased by 160 basis points, Cox officials noted. The decrease in approval rates and the widening yield spreads mean fewer consumers are getting approved for loans — and at worse rates.

The average auto loan rate increased by 46 BPs from January. Notably, this is the first rate increase since March 2024. Also, the overall length of loan terms grew last month, especially those of 72 months or more.

“Longer loan terms could mean lower monthly payments, which help consumers. It also means consumers will pay off the loan more slowly and potentially spend more on interest over the life of the loan,” Cox analysts noted.

However, despite all of these negatives, more loans were approved, which helped push January sales well above year-ago numbers.

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