The US automotive industry enters the spring selling season facing a pivotal test as tax season begins under a new fiscal backdrop. Changes implemented by the Trump administration are expected to deliver higher tax refunds to many Americans, creating cautious optimism among automakers and dealers. Industry analysts believe a portion of these funds could help consumers reenter the new-vehicle market after several years of affordability pressures. The key question for manufacturers and retailers is whether this temporary liquidity will translate into meaningful showroom traffic or be absorbed by other financial priorities.
According to Charlie Chesbrough, senior economist at Cox Automotive, the revised tax structure may surprise buyers who were not anticipating larger refunds. Early Internal Revenue Service data supports that view, showing the average refund up 10.9% year over year to US$2,290 as of Feb. 6, 2026, compared with US$2,065 during the same period in 2025. While the increase is modest relative to vehicle prices, it could influence purchase timing among cost-sensitive households.
Policy Tailwinds Meet Consumer Caution
The refund increase is largely driven by the One Big Beautiful Bill Act, signed into law in July, which eliminated taxes on overtime and tips. The legislation also allows eligible taxpayers to deduct up to US$10,000 annually in interest paid on loans for new vehicles assembled in the United States. Together, these provisions aim to support household spending while reinforcing domestic manufacturing.
However, analysts warn that higher refunds do not guarantee higher vehicle sales. Inflation has eroded purchasing power across essential categories, keeping many consumers defensive about large discretionary purchases. March is traditionally a strong month for auto sales, yet uncertainty remains over whether refunds will be directed toward vehicles or diverted to debt reduction and savings.
Affordability Pressures Continue to Shape Buying Behavior
Affordability remains the sector’s most persistent challenge. US buyers are increasingly extending loan terms to offset rising prices and borrowing costs — a trend that signals structural strain rather than renewed confidence. Data cited by Edmunds shows that average monthly payments for new vehicles reached a record US$772, reflecting the combined impact of elevated interest rates and higher transaction prices. Longer loan tenures may support volumes in the short term, but they also increase credit risk and consumer sensitivity to economic fluctuations.
Vehicle prices remain historically elevated. The average transaction price for a new vehicle hovered near US$50,000 at the end of last year, roughly 30% higher than at the start of 2020, according to Cox Automotive. That increase has narrowed the pool of buyers willing or able to assume US$40,000 to US$50,000 auto loans. Consequently, any incremental demand generated by tax refunds is likely to be concentrated among higher-income households rather than broadly distributed across the market.
Consumer sentiment data reinforces this cautious outlook. US consumer confidence fell to 84.5 in January, its lowest level since May 2014, amid concerns over persistent price pressures and signs of labor-market softening. Analysts generally agree that only consumers confident in their income stability are inclined to commit to long-term auto financing. This dynamic limits the potential scale of any tax-driven sales uplift and deepens the bifurcation between premium and value-oriented demand segments.
Despite these headwinds, US automakers closed 2025 with solid momentum. Overall vehicle sales rose 2.4%, marking the industry’s strongest performance since 2019, according to White House data. The administration has cited the results as evidence that tariffs on imported vehicles and parts have not materially increased consumer prices. For manufacturers, the outcome reflects disciplined inventory management and targeted incentive strategies.