A customer stands near a Ford Maverick pickup truck at a Ford dealership on Wednesday, April 16, 2025 in Richmond, California.
David Paul Morris | Bloomberg | Getty Images
DETROIT – The strength of the U.S. auto industry will face an early test this spring that has nothing to do with cars and trucks.
As tax season begins, industry experts predict that some Americans, many of whom are priced out of the new car market, will take advantage of their expected large tax returns to buy new or used cars.
Any extra cash on hand could provide a much-needed boost to an industry struggling with sluggish auto sales. Or it could reveal the auto industry’s continuing problems with soaring prices and consumers remaining reluctant to spend on big-ticket items.
“Their new tax bill will actually be lower and they’ll get more money on their tax return, which is going to be a little bit of a surprise to a lot of potential buyers,” Charlie Chesbrough, senior economist at Cox Automotive, said at a recent conference for auto analysts.
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. The average refund as of February 6 was $2,290, compared to $2,065 about a year ago.
The increase was expected under the Trump administration’s tax reforms, including the One, Big Beautiful Bill Act, signed into law in July. The law eliminated taxes on overtime pay and tips, and allowed eligible taxpayers to deduct up to $10,000 in annual interest paid on the loan for a new American-made car, among other adjustments.
car dealer stocks
Many of the tax changes were retroactive to January 2025, so taxpayers may have withheld more than they ultimately owed.
“It’s a bit of an unknown, but we feel it could be very beneficial for auto sales, especially in this kind of period from Q1 to Q2,” said David Oakley, manager of Americas auto sales forecasts at GlobalData.
March is historically one of the busiest months for car sales in the United States, especially used car sales. Cox said the month accounted for 9.1% of average annual new car sales over the past 12 years, trailing only December, which had 9.3% of sales.
Many of the recent tax changes will also help middle-income and above consumers who may decide to bring their car purchases forward. Similar moves were seen in the industry during the coronavirus pandemic, when the Trump administration issued $1,400 stimulus checks to many Americans.
But back then, federal interest rates were near zero compared to today’s 3.5% to 3.75% Federal Reserve rate, and new car inventories were low. Now, borrowing costs are higher but inventories are improving, so the equation may be different.
As financing costs and prices rise, more buyers are agreeing to long-term loans. Depositing extra cash upfront can help reduce your monthly payments. carmax’s New car sales prices reached a record $772 per month in the fourth quarter, according to an Edmunds report.
The average transaction price for a new car in the U.S. hovered around $50,000 toward the end of last year, up 30% from the beginning of 2020, Cox said.
“What we don’t know is that consumer finance is already under a lot of stress. Is that extra money already spent? Is it going to go into your pocket? It’s a really complicated world out there,” Chesbrough said.
Consumers will have the option of taking advantage of higher tax returns to pay off credit card debt (which is at a record $1.28 trillion nationally, according to a New York Fed report last week) or replenishing savings after inflation continues.
The US Consumer Confidence Index in January fell to 84.5, the lowest level since May 2014, due to strong concerns about rising prices and a weakening labor market.
“The only people who are interested in taking out a $40,000 or $50,000 car loan are people who are confident — people who are confident in the economic destiny of the U.S. economy,” Chesbrough said. “It’s a very difficult situation right now.”
– CNBC’s Kate Dore contributed to this report.
