It is tax refund time across America, and the average refund for taxpayers is growing. That appears to mean more good news for the auto industry.
This year the average refund is almost $1,800, and some experts say a lot of it will go toward a down payment on a vehicle - particularly in the subprime sector.
'Especially for lower-end buyers, a lot of car dealers are using the larger refunds as a marketing vehicle,' says Charles McCabe, president of Peoples Income Tax, a Richmond, Va., tax service with 13 locations in the state.
'They're the ones who usually don't have the extra money needed for a down payment,' he says.
As of Feb. 25, the Internal Revenue Service reports, this year's average refund was $1,784. That is 15 percent higher than the average rebate of a year ago, thanks to the continued national economic boom, and to changes that trimmed individual federal tax bills for last year.
One contributor to that, the IRS says, is a new tax credit worth up to $400 for each dependent under age 17.
About 25 percent of the returns filed so far have claimed the new credit.
Other beneficial changes include the Hope Scholarship Credit, which lets taxpayers claim a credit of up to $1,500 a year against college tuition.
Art Spinella, general manager of CNW Marketing/Research of Bandon, Ore., estimates that about 40 percent of the nation's income-tax refunds each year go toward some sort of automotive-related spending, including purchases of new and used cars and repairs.
Eager to get their refunds as soon as possible, 12 percent more Americans than a year ago also filed their returns electronically by Feb. 25.
Mike Morrisey, a spokesman for the National Automobile Dealers Association, says more dealers are making a sales hook out of their capability to electronically file a return to the IRS, to advance the expected refund to the customer for a down payment, and then to claim the refund when it arrives.
Lower taxes also appear to have helped small-business owners spread the wealth, Spinella says. For the past six months at least, he says, owners of businesses with fewer than 50 employees 'have been driving this market.'
Including purchases for business or personal use, small business owners bought 9 percent more new vehicles last year than in 1997, he says, while vehicle sales for nonbusiness uses rose only by about 0.5 percent.
Some experts soft-pedal the importance of the annual refund - even this year.
'Tax refunds are like the icing on the cake, but not the reason sales are robust,' says Ellen Hughes-Kromrich, senior economist for Ford Motor Co. 'We have no good statistical results to back up the hunch that tax refunds are driving the strong economy. There may be some association in better-than-expected spending in the first quarter, but I would look to other factors - strong wage and income growth, low inflation, low interest rates - as the more important driving force.'
Another factor is that stiff competition is keeping prices flat, notes Anne Marie Sylvester, a spokeswoman for General Motors.
Some dealers see little correlation between tax refunds and auto sales.
'None of my sales managers has noticed a spike due to refunds,' says Ken Hunt, general manager of Longo Toyota in El Monte, Calif. 'Many people are still waiting for their refunds. Sales are ahead of last year, but we attribute that to a good economy and a larger availability of Toyotas.'
Alternative big-ticket items like personal computers and cruise vacations also compete with vehicle purchases for spring refunds.
'They're putting pressure on our industry,' says Morrisey.
Still, it is clear tax refunds don't hurt.
'Lenders look at employment and credit backgrounds as the dominating factors,' says Sylvester.
'Anyway, if you get a refund, it's probably because you have a job.'