Tax refunds help cushion the blow for car buyers
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That fat tax refund consumers were hoping to put toward a new car purchase this spring might instead be gobbled up by higher prices for gas, insurance and other daily costs of living.
Why it matters: Tax season has long been a tailwind for car sales, but this year's heftier-than-average refunds are colliding with higher monthly costs that a one-time check can't fix.
It's not just pain at the pump, where gas prices have risen 35% since the start of the war in Iran.
- Higher sticker prices coupled with steeper borrowing costs are driving up new-car payments to an average of $770 a month. Used-car payments average $560, says the car-buying site Edmunds.com.
- Insurance premiums and repair costs are through the roof, too — up 55% since the pandemic, according to the National Automobile Dealers Association.
Eventually, these higher costs of vehicle ownership will cause stressed-out consumers to buckle, economists predict.
- But so far, there's only a hint of those pressures in the vehicle sales data.
- "Higher fuel prices have not yet caused consumers to hold off on purchasing a new vehicle," Patrick Manzi, chief economist at the National Automobile Dealers Association, tells Axios.
Driving the news: New car sales were down about 6% in the first quarter, compared with the same period in 2025, when buyers rushed to get ahead of tariffs, making year-over-year comparisons difficult.
- With the average new car price approaching $50,000, some buyers are trading down to lower-trim models or turning to the used-car market as they seek lower-cost alternatives.
- Used car sales rose about 1% in the quarter, while wholesale used car prices hit their highest point in nearly three years in March amid strong demand and limited inventory.
What they're saying: "2026 has started off on a strong note as tax refund season was a boon to consumers," says Cox Automotive chief economist Jeremy Robb.
- But he adds a note of caution: "The conflict in the Middle East has thrown a great deal of worry at the market and the economy overall since the beginning of March. While most of our trends look very healthy, we know the tide could turn soon."
Between the lines: It's possible that larger tax refunds due to last year's One Big, Beautiful Bill Act are supporting the market in ways that mask the impact of higher vehicle costs.
- All that extra stimulus — $222 billion pumped into the economy in the first quarter — should be turbocharging vehicle sales right now. Instead, they're holding steady.
- Likewise, those refund checks, averaging $3,521, up 11% over last year, might be helping to soften the pain for consumers.
- Automakers and lenders are responding by stretching loan terms, leaning more on subprime approvals, and pushing certified used cars and entry‑level trims to find a monthly payment that those households can still handle.
What they're saying: "For consumers, this is a timing and reality problem. Just as some expected a larger refund to help fund a car purchase or pay down debt, everyday costs, from gas to insurance to borrowing, have moved higher, effectively neutralizing that benefit for many," Erin Keating, Cox Automotive executive analyst, tells Axios.
- Consumers will have to weigh how necessary it is to buy a new car right now, she says.
- "This is the new mental calculus price-sensitive customers are having to wrestle with."
What we're watching: Falling gas prices could mean we won't end up seeing a notable shift in consumer behavior.
- Meanwhile, car-shopping websites are seeing more searches for electric vehicles and hybrids.
Disclosure: Cox Automotive is owned by Cox Enterprises, which also owns Axios.
