Tax refunds, stimulus checks to fuel sales

The arrival of income tax refunds coupled with a new round of COVID-19 stimulus checks could bolster used-vehicle sales across the automotive industry more than usual this spring, dealers and used-vehicle experts say.

Demand for used vehicles, usually strongest in the spring, is on the rise. The effects of the pandemic and the shortage of new-vehicle inventory at retailers had consumers increasingly looking for used options. Microchip and other supply constraints have further limited new-vehicle production.

Add to that a $1.9 trillion COVID-19 relief bill signed into law by President Joe Biden on March 11 that allocates up to $1,400 in stimulus payments to people who qualify, and some dealers are optimistic about what those checks will mean for the spring selling season.

"Interest rates are low," said Peter Lustgarten, president of Concordville Nissan and Concordville Subaru in Pennsylvania. "When you put $1,000 or $1,400 down on a low interest rate, it really does make an impact on your monthly payments. So it's going to make cars more affordable for people."

Lustgarten told Automotive News that used vehicles have sold well since his showrooms reopened for business in June 2020 after a state shutdown order lifted. They were closed most of last spring, starting in late March, because of the pandemic. Last month, his Subaru store sold 95 used vehicles — the most in its 30-year history.

Lustgarten said he expects continued strong used-vehicle sales now that consumers have more stimulus cash at the ready.

Big retailers also anticipate strong sales.

Tax refund season usually is a busy time of year for CarMax, the nation's largest used-vehicle retailer.

"As we think about this year and the potential for another stimulus check, this could make for an even stronger down payment when combined with a tax refund for those in the market to buy," Darren Newberry, CarMax's senior vice president of store operations, said in an email.

Carvana Co. CEO Ernie Garcia said last month that he expects the spring boost to be pushed out further this year in part because the processing start of tax returns by the Internal Revenue Service was delayed a couple weeks compared with previous years. But another factor could temper the online used-vehicle retailer's sales performance in the coming weeks.

"We've got a lot more demand than we're able to satisfy given our limited inventory," Garcia said.

Despite the delayed start on tax returns, Cox Automotive Chief Economist Jonathan Smoke said the seasonal boost in used-vehicle demand is already underway.

"Tax refund season drives a spring bounce in used-vehicle values that is extremely predictable, highly correlated to when tax refunds start to be issued every year," Smoke said. "This year, this spring bounce started before the IRS even started distributing tax refunds."

Smoke credits the early start to stimulus payments of up to $600 that consumers received in January after President Donald Trump signed a pandemic relief package on Dec. 27. Tax refunds and the latest $1,400 stimulus checks will "continue to support demand," he said.

Smoke noted that consumer sentiment is improving as COVID-19 vaccines roll out. The positive things happening around the same time for the economy have Smoke expecting an "incredible spring" from a vehicle-sales perspective.

"It's shaping out to be exactly that and probably even stronger than I thought it could be," Smoke said. Cox is forecasting a significant increase in retail used-vehicle sales for 2021. "Then our problem is supply."

Used-vehicle shortages in both the retail and wholesale markets "can only mean that if people are wanting to spend and they're wanting to buy vehicles, that vehicle prices are going to be going up," he said. That's been happening on the wholesale side already, he said.

Tom Vosen, general manager of Harbin Automotive in Scottsboro, Ala., is watching that inventory situation closely.

"You have probably the tightest inventory conditions we've ever seen in the car business," Vosen said. "So we have great consumer demand, but very tight inventory — not only on the new-car side, but on the used-car side as well."

Still, he's looking forward to spring sales and the twofold infusion of stimulus payments and tax refunds.

"The spring, as far as used cars go, is always one of the better times because of income tax, and this year is probably not going to be any different," Vosen said.

Jackie Charniga, Melissa Burden and Amy Wilson contributed to this report.