Tax Season Becomes the "Watershed" for U.S. Auto Sales

　　Key Points

• Thanks to tax code adjustments brought by Trump’s "A Grand Beautiful Bill," many Americans are expected to receive larger tax refunds this tax season.
• Automotive industry experts predict that some consumers who previously could not afford new cars due to high prices may use this extra cash to purchase sedans or pickups.
• March has always been one of the highest months for U.S. car sales, but the complex macro environment may lead Americans to choose to save or pay down debt instead of buying cars.

　　This spring, the U.S. auto industry will face a key test, one that is unrelated to the vehicles themselves.

　　As tax season begins, industry experts predict that some Americans who were previously priced out of the new car market will use the expected higher tax refunds to purchase new or used cars.

　　This extra cash could provide a much-needed boost to an industry with slowing sales, or it could expose ongoing issues: car prices are still inflated and consumers remain reluctant to spend heavily.

　　Charlie Chesbrough, Senior Economist at Cox Automotive, said at a recent automotive analyst conference:

　　“People will actually pay less tax and get more refunds. We think this will come as a small surprise for many potential buyers.”

　　Early filing data shows that so far this tax season, the average refund from the IRS is up 10.9% compared to the same period in 2025. As of February 6, the average refund was $2,290, compared to $2,065 for the same period last year.

　　This increase is an expected result of the Trump administration’s tax reform policies, including the "A Grand Beautiful Bill" signed last July. The bill eliminated taxes on overtime pay and tips, and allows eligible taxpayers to deduct up to $10,000 in interest annually on loans for new vehicles assembled in the U.S., among other adjustments.

　　Many of the tax reform measures are retroactive to January 2025, meaning taxpayers may have had more taxes withheld than they ultimately owe.

　　David Oakley, Americas Automotive Sales Forecast Manager at GlobalData, said:

　　“Although there is still some uncertainty, this looks very favorable for auto sales, especially from the first to the second quarter.”

　　March has traditionally been one of the highest months for U.S. auto sales, especially for used cars. Over the past 12 years, new car sales in March have accounted for an average of 9.1% of the annual total, second only to December’s 9.3%.

　　Recent tax reforms also benefit middle- and high-income consumers, who may choose to buy cars early. A similar situation occurred during the Covid-19 pandemic, when the Trump administration issued $1,400 stimulus checks to most Americans.

　　However, at that time, federal interest rates were near zero, while now the federal funds rate is 3.5%~3.75%, and new car inventories were low then. Now borrowing costs are higher and inventories are more ample, so the situation may be different.

　　With both financing costs and car prices rising, more buyers are accepting longer-term loans. Making an extra upfront payment can help lower monthly payments. Data from automotive trading platform Edmunds shows that in the fourth quarter of last year, new car monthly payments reached a record high of $772.

　　Cox data shows that at the end of last year, the average transaction price for new cars in the U.S. was about $50,000, up 30% from early 2020.

　　Chesbrough said:

　　“What we don’t know is whether, given that consumers’ finances are already tight, this extra money has already been ‘spent.’ Whether it will actually end up in their pockets is very uncertain right now.”

　　Consumers may choose to use higher refunds to pay off credit card debt — the New York Federal Reserve reported last week that total U.S. credit card debt has reached a record high of $1.28 trillion — or to replenish savings after prolonged inflation.

　　In January, the U.S. Consumer Confidence Index fell to 84.5, the lowest since May 2014, mainly because people are extremely anxious about high prices and a weakening labor market.

　　Chesbrough said:

　　“Only those who are confident about their own financial situation and the U.S. economy are willing to take out a $40,000 or $50,000 loan to buy a car. The situation is very tough right now.”

Editor: Guo Mingyu