^{Customers at a Ford dealership in Richmond, California, April 16, 2025.}

^{David Paul Morris | Bloomberg | Getty Images}

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Tax Refunds Could Rev Up Auto Sales

As Americans begin filing their returns, the U.S. automotive industry is watching closely. Changes under the Trump administration’s One Big Beautiful Bill Act are expected to increase the average refund this year, giving some potential car buyers extra cash to spend. For an industry grappling with slowing sales, this tax season could either spark a surge in purchases or highlight persistent challenges for consumers facing high prices and borrowing costs.

Economists at Cox Automotive and GlobalData suggest that some buyers who had been priced out of the market may now consider purchasing new or used vehicles. “Their new tax bill is actually going to be less, and they’re going to be getting more in their tax return. It’s going to be a little bit of a surprise for a lot of potential buyers,” said Charlie Chesbrough, senior economist at Cox Automotive.

Stronger Refunds Compared to Last Year

Early filing data indicates that the average IRS refund has increased 10.9%, reaching $2,290 as of February 6, up from $2,065 at the same point last year. Key provisions of the One Big Beautiful Bill Act, signed in July, include removing taxes on overtime and tips and allowing deductions of up to $10,000 in annual interest on loans for new, U.S.-assembled vehicles. Many of the changes are retroactive to January 2025, meaning taxpayers may have overpaid throughout the year and will see larger refunds.

Economists note that this infusion of cash could bolster vehicle sales during the spring, traditionally one of the strongest periods for automotive purchases. Historically, March accounts for 9.1% of annual new vehicle sales, second only to December’s 9.3%.

Rising Costs and Consumer Caution

Despite potential windfalls, the market faces significant headwinds. The average transaction price for a new U.S. vehicle is around $50,000, up 30% since 2020, and financing costs remain high with the Federal Reserve’s benchmark rate at 3.5% to 3.75%. Car buyers are increasingly turning to longer-term loans to manage higher monthly payments, which reached a record $772 per month in Q4 2025.

Many consumers may instead use their refunds to pay down debt or rebuild savings. National credit card debt has hit $1.28 trillion, and U.S. consumer confidence dropped to 84.5 in January, the lowest since May 2014. “It’s only confident people, people who feel comfortable about their economic situation, that are going to be interested in taking out a $40,000 or $50,000 auto loan,” Chesbrough explained.

Balancing Opportunity and Risk

Analysts emphasize that the impact of higher tax refunds is not guaranteed. While some middle- and higher-income consumers may accelerate vehicle purchases, many households remain cautious amid inflationary pressures and rising interest rates. The effect may mirror the dynamic seen during the pandemic stimulus period, when cash infusions temporarily lifted vehicle sales, but structural cost pressures limited sustained growth.

Auto industry executives remain cautiously optimistic. David Oakley, GlobalData’s manager for Americas vehicle sales forecasts, noted that tax refunds could be “really beneficial to vehicle sales, particularly in the Q1-Q2 timeframe.” Still, dealers will be watching closely to see whether consumers choose cars, trucks, or using refunds to strengthen personal finances in an uncertain economy.