DETROIT -- The massive package of tax cuts signed into law by President Donald Trump last month is supposed to unleash $1.5 trillion into the economy over the next decade. Proponents have said fatter paychecks and greater disposable income should translate into more spending, including for durable goods such as automobiles.
Yet auto dealers aren't taking a sales bump for granted.
"Where does that $1.5 trillion eventually go, and will it be inflationary?" said Peter Welch, president of the National Automobile Dealers Association. "Will it end up in pockets of customers and will that translate into higher car sales? I think the jury is still out on that."
Welch said the law resolved many concerns dealers had during legislative negotiations, specifically about the deductibility of floorplanning interest, but he said the law's complexity still leaves key questions about the economic impact.
While lower tax rates will boost consumers' take-home pay, Welch told Automotive News on the sidelines of the Detroit auto show, sales could be dampened in high-tax regions such as the Northeast and California because of the law's $10,000 cap on deductions for state and local taxes. Residents with high property and sales taxes in those states, including high income earners, could take a financial hit and think twice about buying a new car, which could be especially problematic for premium brand dealers, Welch said.
NADA estimates new-vehicle sales will reach 16.7 million vehicles this year, down from 17.2 million in 2017, and the trade group's economists aren't ready to adjust their forecast until they see how people react to the tax changes, Welch said. It will take until spring for people to realize they have more take-home pay, he said.
Still, Welch said his group is encouraged by the strong business confidence and economic fundamentals, including economic growth that has run above 3 percent for two consecutive quarters, a threshold that typically correlates to real wage growth.
"When the economy is humming it's usually really good for the car industry," Welch said.
Many companies, citing their tax windfall, have begun giving bonuses to employees. Sandy Schwartz, president of Cox Automotive, said those checks may provide customers who are sitting on the fence with enough for a down payment on a vehicle.