Data from the New Zealand Transport agency shows prices in the June quarter have dropped by more than three percent - the biggest quarterly decline in almost 20 years.
A strong New Zealand dollar is partly behind the drop.
Analysis by Infometrics New Zealand says it is surprised by the extent of the drop which suggests weaker international demand has driven down prices overseas.
The drop in prices has fueled a lift in sales, with first time registrations for new cars up more than 5.4 percent on a year ago.
In contrast, fewer used cars are being registered.
The New Zealand dollar has gone down against the Japanese yen which has pushed up the prices of imported second hand cars by 4.4 percent.
As a result registrations of second hand cars have dropped.
However Informetrics says the slide in demand is likely to be temporary with an ANZ- Roy Morgan consumer confidence survey at its highest in two years.
'With car prices still relatively low and consumer confidence building off expectations of a lift in economic growth, total car sales are expected to hold above fundamentals over the year ahead. "