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Maybe the effect of smaller tax refunds on U.S. auto sales won’t be so bad this year after all, as the Internal Revenue Service has done some catching up in the last month.
“There were some early reports that tax refunds were down from the prior year,” said Emily Kolinski Morris, chief economist for Ford Motor Co. “The more recent updates suggest that they’re actually pretty well in line with last year’s pace,” she said in a conference call on April 4.
“Compared to the early reports, I think it looks like a much more normal year than was originally being reported,” she said. However, she warned there could be a delayed effect, assuming people who expect to pay probably wait until the last minute to file their tax returns.
Millions of people are waiting for tax refunds, which are often spent on cars and trucks.
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Tax refund time is traditionally a busy season for auto lenders, especially those catering to buyers with subprime credit. For cash-strapped buyers, who are mostly looking to purchase used cars, their tax refund can represent a down payment. Tax refunds also help fuel the new-car spring selling season for customers with good credit.
According to KBB.com, buying a car was the No. 2 response in a recent poll where consumers were asked what they planned to do with their tax refund. The No. 1 response was to put it in savings.
Separately on April 4, the IRS reported that as of March 29, about 90.3 million tax returns had been processed, down 1.4% from a year ago. About 71.8 million refunds had been processed, down about 2.2%. The size of the average refund was down 0.7%, to $2,893, the IRS said.
Four weeks earlier, as of March 1, tax refunds were off to a slower start. At that point, processed returns were 3.7% behind the same point a year ago, at 56.9 million. Refunds were down 4.2% to 46.4 million. However, the size of the average refund was actually up 0.7% at the time, to $3,046.
In late March, forecasting and consulting firms including Cox Automotive and LMC Automotive, among others, cited smaller tax refunds as a reason for lower U.S. auto sales forecasts in the first quarter compared with a year ago.
U.S. auto sales were down 3.2% in the first quarter, to about 4 million, according to the Automotive News Data Center. That included a 10.8% drop in car sales and an increase of 0.4% in trucks. (Contributor Jim Henry, a freelancer, also writes for Automotive News.)