Auto Market Update
Tax refund season is putting real cash into the market
Average tax refunds are running $3,804, up about 10% year over year. While slightly fewer refunds have been issued, total dollars returned to consumers are up nearly 7%. For dealers this matters because:
• Refund checks are already supporting used vehicle pricing at Manheim
• Consumers have more immediate down payment capability
• This should help spring retail demand, particularly in used vehicles and entry level price bands
Vehicle purchase demand remains strong
Despite softer overall consumer confidence, vehicle purchase intentions are still up 11% year over year. That suggests shoppers still want vehicles even if they are cautious about the broader economy.
• Demand remains intact
• Conversion may depend more on affordability and payment structure
Interest rate relief may be coming later in 2026
Markets are expecting two Fed rate cuts this year, likely around June and September. The 10 year Treasury falling below 4% and the 30 year mortgage dropping under 6% could signal easing borrowing costs ahead.
• Floorplan and retail finance pressure may ease in the second half of the year
• Affordability should improve if lending rates follow mortgage rates lower
Inflation is still present but may improve
Producer prices came in hotter than expected in January, mainly driven by services. However, Fed officials believe much of the inflation from tariffs in 2025 was temporary rather than structural.
• Inflation may gradually ease through 2026
• The bigger relief likely arrives later in the year
Consumer spending is broadening
An important macro signal from the Fed: spending is no longer concentrated only among high income consumers. For dealerships this is positive because:
• Vehicle demand is spreading across more income segments
• This supports volume sales rather than just premium vehicle demand
Housing market remains soft but rates are improving
Home sales slowed sharply and price growth cooled in 2025. However, the drop in mortgage rates may stabilize housing activity.Why dealers should watch this:
• Housing activity often drives vehicle purchases
• Lower mortgage rates could improve consumer credit conditions overall
Bottom Line for Dealers
The spring market has some real tailwinds:
• Larger tax refunds boosting short term buying power
• Vehicle purchase intent still strong
• Interest rates likely improving later in the year
• Broader consumer spending support
But there are still risks to watch:
• Inflation pressures are not fully gone
• Consumer confidence remains weak
• Household balance sheets are still tight
Overall: The environment looks constructive for spring sales, with the potential for meaningfully better financing conditions in the second half of 2026.
