This is the time of year when millions of Americans have been claiming tax refunds, which is good news for automakers and car dealers.
While there are no statistics that indicate precisely how many taxpayers take their refund checks over to the local showroom, industry experts say that’s helped fuel strong sales of both new and used vehicles in recent weeks, though the surge will likely soon wind down.
The year began a little more slowly than Ricky Beggs, senior editor of the used car-pricing guide The Black Book, had expected. It began to surge in March, which Beggs attributes to tax returns.
Beggs said that budget compromises between Congress and the White House and the sequestration that slashed federal spending likely pushed tax-refund-related car buying later than expected. He said the surge could run later into the spring than normal.
In 2012, the average tax refund was $2,803, and about three-quarters of American taxpayers received at least some money back. Those claiming refunds tend to file a bit earlier than those owing money, which may explain why the car-buying surge begins well ahead of the April 15 tax-filing deadline.
“Tax refunds typically help to boost sales at this time of year,” said Alec Gutierrez, senior analyst at Kelley Blue Book. “This year was no different as (U.S. car sales) sales hit the highest monthly total since August 2007 last month, thanks in part to tax refunds.”
Of course, there have been other factors nudging the market into higher gear. There’s a slow but ongoing economic recovery, and that has fueled so-called “pent-up demand” after half a decade of car sales running well below the anticipated trendline.
Meanwhile, the age of the average vehicle on U.S. roads has increased to a record 11 years. “So many people have to replace them,” Beggs said, because their older jalopies are simply no longer operational.
While even the richest Americans often qualify for tax refunds, those who use the money back specifically for a car purchase “tend to be entry-level buyers, rather than luxury buyers,” Beggs said. And they’re far more likely to buy used than new.
Their purchases tend to fall into three market niches: entry level models, entry-midsize vehicles and upper-midsize products.
Beggs said that some dealers he has visited in recent months plan their inventory around tax season and say they may see up to a 30 percent bump in sales after the Internal Revenue Service starts sending refunds.