2026 Tax Changes to Boost Auto Market Amid Steady Used Car Prices

Despite widespread reports of declining consumer demand and falling used car prices, recent data from Cox Automotive reveals a more nuanced reality. Used vehicle prices declined steadily for seven weeks through late November but then stabilized, with key automotive market indicators showing prices running 3.5% higher than the previous year on a weighted basis. Wholesale used car prices reached traditional seasonal lows in September and October and experienced a slightly greater depreciation than usual, aligning with expected market fluctuations rather than signaling a collapse. Inflationary pressures have notably impacted the automotive insurance sector, with auto insurance premiums increasing an average of 13% annually over the past five years. Maintenance and repair costs, parts and equipment prices also rose substantially, contributing to elevated overall vehicle ownership expenses. The pandemic initially led to reduced insurance costs due to decreased driving, but inflation and rising vehicle prices since 2022 have driven auto insurance premiums sharply upward. Looking ahead to 2026, tax code revisions set to take effect January 1 present a potential easing of affordability pressures for consumers. These changes will reduce withholding rates on paychecks, increasing take-home pay immediately. Additionally, average tax refunds are projected to reach an unprecedented $3,700, up from just over $3,000 last year. Historically, many consumers utilize tax refunds as down payments on vehicle purchases, suggesting a potential boost to spring automotive market activity. Although the Federal Reserve has lowered benchmark interest rates multiple times in 2025, auto loan rates have not fully declined, partially due to shifts in consumer credit profiles with more borrowers moving toward near-prime or subprime categories. The psychological effect of falling rates may influence consumer behavior alongside the limited actual rate decreases. The used electric vehicle market experienced some volatility through the year, with prices dropping and then rising before a recent slight decline. Despite the absence of federal tax credits for EVs, Cox Automotive reports these vehicles remain an affordable option for consumers interested in them. Anticipated increased availability of off-lease EVs over the next two years presents new inventory opportunities for dealers, particularly those currently less engaged with electric vehicles. The article underscores the importance for automotive dealers to prepare proactively for spring demand by leveraging favorable tax conditions and emerging vehicle supply trends. Market participants who adapt strategically to these evolving dynamics may capture increased consumer purchasing activity and strengthen sales performance.