Smaller tax refunds could hurt US auto sales in 2019: Report

A side effect of last year’s sweeping tax code reform could hurt U.S. car sales in the coming months, according to a report by Cox Automotive.

The IRS issued tax refunds averaging nearly $2,800 to more than 102 million Americans last year, with total payback amounting to $284.9 billion. The refunds led many Americans to splurge on a new or used car purchase after tax season, pushing the U.S. auto industry to its fourth-best year on record in 2018, according to Axios.

However, the Government Accountability Office warned last July that millions of U.S. households could receive a smaller-than-expected refund, or none at all, because they failed to adjust their withholdings to account for the changes to the tax code. Smaller or nonexistent tax refunds could hurt consumer demand for vehicles during a traditionally strong season for the U.S. auto industry.

“Ironically this year’s stronger economy was aided by higher consumer spending than otherwise might have been the case had withholdings been properly calculated,” Cox Automotive Chief Economist Jonathan Smoke said. “That means the market may get a double whammy when workers realize that some of their additional pay is actually owed to Uncle Sam and then see their 2019 paychecks reduced to prevent another surprise in April 2020.”

Cox Automotive expects U.S. auto sales of 16.8 million units in 2019, down from last year’s final tally of 17.2 million. The firm said an analysis of payroll records showed no difference in the percentage of employees who changed their tax withholdings, suggesting that those consumers will receive smaller refunds than last year.


The report came just before the start of the North American International Auto Show in Detroit, Michigan.