Customers at a Ford dealership in Richmond, California on April 16, 2025.
David Paul Morris | Bloomberg | Getty Images
DETROIT — The strength of the U.S. auto industry will face a first test this spring that has nothing to do with cars or trucks.
With the start of tax season, industry experts predict that some Americans, many of whom have been priced out of the new vehicle market, will use their higher tax returns to purchase a new or used vehicle.
Extra cash could provide a needed boost to an industry suffering from slowing vehicle sales — or it could reveal ongoing problems for the auto industry with inflated prices and consumers still reluctant to spend on big-ticket items.
“Their new tax bill will actually be less, and they’ll get more in their tax return. That’s going to be a bit of a surprise, we think, to a lot of potential buyers,” Charlie Chesbrough, Cox Automotive’s senior economist, said at a recent auto analyst conference.
The average IRS tax refund is up 10.9% so far this season, compared to the same point in 2025, according to early filing data. As of February 6, the average refund amount was $2,290, compared to $2,065 reported about a year ago.
The increases were expected as part of tax changes made by the Trump administration, including the One Big Beautiful Bill Act signed in July. This legislation waived overtime and tip taxes and allowed eligible taxpayers to deduct up to $10,000 in annual interest paid on loans for new U.S.-assembled vehicles purchased, among other adjustments.
Car Dealership Inventories
Many tax changes were made retroactive to January 2025, meaning taxpayers may have withheld more than they ultimately owe.
“Even though it’s a bit of an unknown, it seems like it could be really beneficial for vehicle sales, especially in this kind of time period between the first and second quarters,” said David Oakley, head of Americas vehicle sales forecasting at GlobalData.
March is historically one of the best months for vehicle sales in the United States, particularly for used vehicles. The month has accounted for 9.1% of annual new vehicle sales on average over the past 12 years, according to Cox, behind only December with 9.3% of sales.
Many of the recent tax changes also help middle- and upper-income consumers who may decide to move forward with purchasing a vehicle. The industry saw similar dynamics during the Covid pandemic, when the Trump administration issued many Americans $1,400 stimulus checks.
However, at the time, federal interest rates were near zero compared to the current Federal Reserve funds rate, which is between 3.5% and 3.75%, and new vehicle inventories were low. Today, with higher borrowing costs but improved inventories, the equation might be different.
More buyers are accepting longer-term loans amid higher financing costs and prices. Depositing additional cash can help reduce monthly payments, which Carmax Edmunds reports hit a record $772 per month for new vehicles during the fourth quarter.
The average transaction price for new vehicles in the United States hovered around $50,000 toward the end of last year, up 30% from the start of 2020, according to Cox.
“What we don’t know is with consumer credit already being so stressed, has this extra money already been spent? Is this money going to be in people’s pockets. It’s a really mixed bag,” Chesbrough said.
Consumers could choose to use higher tax filings to pay off credit card debt — which stands at a record $1.28 trillion nationally, according to a report released last week by the Federal Reserve Bank of New York — or replenish their savings after a period of persistent inflation.
U.S. consumer confidence fell to 84.5 in January, the lowest level since May 2014, due to intense concern over rising prices and a weakening job market.
“Only confident people, people who feel comfortable with their economic situation relative to the U.S. economy, will be interested in a $40,000 or $50,000 car loan,” Chesbrough said. “It’s a very difficult situation right now.”
—CNBC Kate Dore contributed to this report.