Tax refunds make great down-payments which are great for higher prices. Every year, the industry salivates over tax refund season. But this year will be special.
By Wolf Richter for WOLF STREET.
Prices of used vehicles sold at auctions where franchised and independent dealers replenish their inventories jumped by 2.4% in January from December, adjusted for mix, mileage, and seasonality (red in the chart), amid tight supply and “strengthening demand” despite the harsh winter weather in a big part of the country.
Unadjusted prices jumped by 2.7%, much more than the normal price increase in January (blue), which over the long term averaged 0.4%, according to today’s Manheim Used Vehicle Value Index (MUVVI). Manheim, a division of Cox Automotive, is the largest auto auction house in the US.
The 2022 through mid-2024 plunge in used vehicle prices – after the horrendous spike in 2020 and 2021 – contributed substantially to the cooling of inflation. Now there’s new energy being infused into prices: “The spring bounce for wholesale markets looks like it started early this year, and stronger tax refunds and lower used supply may keep it running for longer than typically seen,” Manheim said in the report.
The Manheim Market Report (MMR) index for three-year old vehicles jumped by 1.5% in January from December, “more than is typical for this period,” Manheim said.
Sales conversion at the auctions, at 60.7% in January, was 3.2 percentage points higher than the average over the past three years, and 6.5 percentage points higher than in December, indicating “strengthening demand, as the metric remains above usual levels for this time of year,” Manheim said.
Year-over-year, unadjusted prices were up by 2.5% in January, after being nearly flat for the prior three months (0.2%, 0%, 0.7% year-over-year).
This tax refund season will be special.
The One Big Beautiful Bill (OBBB) included seven tax credits, deductions, and exclusions – new or increased – that will lower the tax bill for individuals for the tax year 2025 by $129 billion, according to estimates by the Tax Foundation.
But the IRS did not adjust its withholding tables for 2025, and so the refunds, to be paid out during tax refund season in 2026, will be larger than normal. Republicans have recently stated that this was planned so that consumers would get this cash and feel good and spend it, and that it would boost the economy just before the mid-term elections and thereby boost support for Republicans.
And consumers will largely spend their tax refunds. Tax refunds make great down-payments for used vehicle purchases, and big down-payments are great for higher prices. Every year, the industry salivates over tax refund season. But this year will be special.
Manheim is seeing this already:
“We had planned for a stronger January from a pricing perspective, but wholesale values moved even faster than we expected on the back of strong retail demand, driving the MUVVI to its highest reading since September 2023.
“With tax refund season officially starting last week, we are expecting that more consumers will be getting refunds – and that the size of those refunds will hit a new record. Those factors should help consumers punch the ticket on some big-ticket purchases, even as we have seen a more muted impact on market interest rates in the face of three Fed cuts since September.”
Supply at these auctions comes from rental fleets that sell vehicles they pulled out of service, from finance companies that sell their off-lease vehicles and repos, from corporate and government fleets, from other dealers, etc.
But wholesale supply is tight, at 26.6 days’ supply at the end of January, compared to 32 days on average for the end of January in the years before the pandemic.
These auction prices form the costs for dealers. And those higher costs then flow into retail prices if consumers go for those higher prices — and this time they will, armed with big tax refunds.
Prices of EVs versus ICE vehicles.
Prices of used EVs rose by 0.4% in January from December from already very high levels, to $27,298 (red).
Prices of ICE vehicles jumped by 2.2% for the month to $19,105 (blue).
Retail prices for used vehicles in January will be reflected in the CPI for used vehicles, to be released maybe next week by the Bureau of Labor Statistics. For December, the CPI for used vehicles declined from November by 1.1% seasonally adjusted (red) and by 1.6% not seasonally adjusted (blue).
Since the used vehicle CPI reacts with a lag to wholesale prices, the impact of the jump in wholesale prices in January, and going forward through tax refund season, will start showing up in the CPI in a month or two.
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Howdy Youngins. Never let Uncle Sam or anyone else owe you $$$. If you do get a Govern ment refund, save it or pay off debt…..
That advise will fall on deaf ears 🤣
It’s baffling how people don’t get (or maybe don’t care) that they’re giving an interest free loan to the government instead of having that money in their pocket.
Treasury once sent me a check for $1.49. Probably cost them more to print it and send it out than that. Would have cost me more to drive to the bank to deposit it. So there it sits framed and uncashed many years later providing an endless supply of laughing that I couldn’t get watching the Marx Brothers making fun of the silly play-money games that have never ceased. Of course if they want to give me my even steven share of that $42 per ounce gold I’ll be happy to send the “unresolved claim against assets” back to them.
It is better than accidentally owing taxes from a miscalculation. Then being penalized with fees and interest later.
consider that banksters don’t really offer you return on cash
my daughter just finished her Masters
total student loan debt = $0 (she paid undergrad and grad tuition)
our local State U wanted $65k for her Masters – she paid $15k at Liberty online
she now understands why we didn’t fund her education
she recently bought $20k car using CASH also
she earned everything she has
It’s baffling to think that some people believe the tax code is so simple that this is an easy task or something worth your time. I have no idea how my trading or job bonuses are going to go on any given year.
I think it’s good advice for people who have struggle with overspending. I find much easier to plan on receiving money than having to give it up. Imagine having spent the money that you owed. How is that better?
Getting a little back is probably ideal for most people.
On a less (more?) serious note, if people can be conditioned for President’s Day Mattress sale, I suppose they can be conditioned to buy a car with their refunds.
I just see the refunds as retirement savings.
It sucks that American families have to act like it’s some bonus for their household.
You get gouged by inflation, banks take your rightful interest, your job delays raises, the prices of things you need go thru the roof, vehicle costs thru the roof, taxes are tricky, property taxes annoying (but helpful overall), tv subscriptions draining, health insurance extremely expensive (better than bankruptcy tho), most Americans don’t own enough diversified mutual funds, vacation prices are ridiculous… the list goes on and on.
I’ve been hearing that few want to pay in excess of $50k for new quick to depreciate vehicles
my brother said they now have 10 year loans available to keep payment under $1k
Michael et al:
There’s no more free lunch. The penalty for under-payment is now 8%.
This has increased substantially since 2024 (the big move was December’24?).
I used adhere to the “no interest free loans.” My CPA is advising otherwise. I may be due for a refund (or maybe a bill).
The tax code is a nightmare.
The IRS publishes the quarterly interest rates for underpayment on their website. It peaked in 2024 at 8% and drifted down to 7% for 2025 along with the decline in short term interest rates. It was 3% in 2021 and started to increase in 2022. So it seems to roughly follow a “T-bill midpoint plus 3%” curve. Meaning if you just keep the money in T-bills then pay it all on April 15 your net cost is only about 3%. I consider that a fair trade to dodge the hassle of quarterly estimated tax paperwork.
The safe harbors are your friend. Pay 100% or 110% of last year’s tax, and you’re home free.
I love part were
If you underpay by more than $500
how can you determine that miniscule amount
now I need to get back to writing my annual book
company taxes due in 5 weeks
I’ve paid $500 to $2000 annually for many years and never paid a penalty or interest….
I haven’t gotten a refund in 40+ years. I’m amazed at the people who are so taken in.
I used to when I had kids living at home
It’s been 5 straight years of inflation above the “FED’s target.” They even started cutting rates before they hit it. When will they finally admit it’s intentional? INFLATION STOKING/ENTRENCHMENT OPERATION.
It’s likely they are quite pleased having inflation under 3%. Low enough to pretend they are trying to reach 2%, but high enough to help with the national debt.
except as wolf points out i beleive that health insurance is not included in inflation number so there you go……
There’s a fine line between appreciation and inflation. But I do agree that at some point it goes on long enough to be intentional.
Part of me thinks that its normal price discovery after years of cheap goods and services. Nonetheless if Warsh stays the course rather than flip flopping, you may finally get your wish of QE abolishment.
at least the 28% increase in property insurance is deductible
as is the property tax
but only on rentals
income tax is SCAM
I could sort of see the strategy if we weren’t still running huge deficits, and inflation would be used to pay off the debt. But any inflating away of the debt is more than outweighed by additional debt being incurred each year.
Inflation 3%, raise prices 6%! 👍
After imposing 10% tariff on Canadian oil WCS minus Brent is: (-) 28.
Tariffs on all other imports from Canada and Mexico, ex oil, is 25%.
Carney wants to build a new TMX pipeline to diversify.
“Tariffs on all other imports from Canada and Mexico, ex oil, is 25%.”
No. USMCA-compliant products generally are not tariffed when imported into the U.S. from Canada or Mexico, if they meet the specific rules of origin under the USMCA
Got my taxes done today and was surprised to get a nice refund instead of paying. The new $6000 Senior deduction knocked me down from paying 22% to 12%. Wasn’t a big window but I got lucky to hit it.
Should be interesting to see how much this adds to the deficit. Will it be more than 129 billion. How much will it add to inflation when word gets around about these new tax refunds? Remains to be seen.
In other words, your $6K senior deduction means 10% of your taxable income is $6K… ie your taxable income is $60K, in other words, below the 50% percentile in the US which is $83,730. The top 50th percentile (which you don’t belong to) paid 97% of all income taxes.
I think it dropped my taxable income from say 54 to 46k dropping the taxable 22% chunk to 12.
It’s like what Willie Sutton mythically said, “because that’s where the money is”. It’s crazy how much incomes and wealth have concentrated in the top 10%. Then they complain that they pay all the taxes!
It’s 1972 again, this time however, we have a lot more debt in the system and no “Volcker” in sight…
Interesting times…
To be fair, in 1972 there was no Volcker in sight either. Unless you’re counting his role in the abandonment of Bretton Woods circa ’71.
I don’t think he took over NY Fed until ’76
Correct. Going into the second wave of inflation. The debasement trade is still very much in play. I have a good college friend who is a jeweler. Very good craftsmen. I was asking him about getting a piece made for valentines and an anniversary. At least from his perspective, price over spot, if you can get melt metal is still insane. Monetary systems do not go quietly into that good night so this further confirms the debasement trade (in dollars) is still on.
Think 2022 was 1972, maybe?
Luckily back then I think bonds only suffered once from the inflation. Even though the inflation was quite sticky.
in 1972, being a millionaire meant thurston howell the third rich. now in 2026, being a millionaire is like being a thousandaire. dont’ worry kids, we will all be billionaires within a decade.
Memory issues will start impacting new cars in the coming months. COVID again but this time because we let a burning pile of money put 40% of all memory production in a warehouse. Computer parts have felt the price hike for months and it’ll spread to everything.
I’m not sure cars use motherboards and Ram from PCs.
They use a lot of chips.
I just bought a bag for $3.50!
🥁
There might be a silver lining.
If chatbot-enhanced software development results in efficient code, i.e. a rollback of application memory footprint from the bloatware coming out of existing development pipelines, then we won’t notice the cost cutting taking place to reduce the RAM and flash in the devices we buy.
Pipe dream or virtuous circle? I guess we’re going to find out.
Perhaps we go back to LaserDiscs!
They were massive.
My crystal ball (NFA) tells me a lot of that refund cash is going to be lain at the feet of my alpha goddess ULTA beauty … we shall see!
Who benefits from spikes in used car prices? I agree inflation is coming I’m seeing it in wages anecdotally and it hits there first seems to me 🤔
MW: Bitcoin bounces above $70,000 mark, but is still headed for its worst week since 2022
Bitcoin’s latest selloff is shattering many of its most enduring myths
In 2024 we imported: $477B from Mexico and $360B from Canada. In
2025 we imported more than $1T from Mexico and Canada: cars, food, lumber…Will Manheim jump to $25K/ $30K, breaching 2022 high, in an
A-B-C up since 2020 low ???
1:04 PM 2/6/2026
Dow 50,115.67 +1,206.95 2.47%
S&P 500 6,932.30 +133.90 1.97%
Nasdaq 23,031.21 +490.63 2.18%
VIX 17.47 -4.30 -19.75%
Gold 4,977.00 +87.50 1.79%
Oil 63.48 +0.19 +0.30%
I swear I should buy that 2% dip but I always wait for 5% and it never happens.
Where’s my bear market?
Haha
If road mileage per driver is actually down, would that reflect in the used cars being purchased such that their value would be calculated to be slightly higher at auctions? Of course, engine idling hours for ICE might be higher regardless of driven mileage.
Worse when cars had carburetors and chokes.
I miss manual transmissions and chokes!
Oh the fear when driving on hills!
And when your clutch was worn out, thing would stall if you twitched wrong.
Haha
I still enjoy the carbs and the anti-theft devices(standard transmissions) in my so called “death traps”.
Not surprising – lower inventory due to the pandemic, and higher new car prices both when the used cars were built and now. The former will continue to be a problem for the next 4-5 years, and I don’t see new car prices going down over that time frame also. The only thing that may help is the slowdown in immigration/population growth – less demand.
DOW 50,000!
New Gilded Age…
Big Tech goes on a $600 billion AI spending splurge…
Amazon: IOU $200 billion Nvidia
Meta: IOU $300 billion Nvidia
Apple IOU $200 billion….
Meanwhile that morning at the Silicon Valley bank of choice: “We need loans of 1 trillion”
Oh the House of Cards they build. And all of our utility bills go higher.
The markets can only go up from here – up in flames…
Every spring its tax refund boom time for used car dealers, and Realtors feeding frenzy with the selling season. Hope they can all thrive. Rhetorical question: Inflation is hated but hasn’t affected behavior so who really cares?
As for the incumbent party hoping to win midterms by goosing refunds; forget it. It’s not even worth trying; it never happens and it is not going to happen, and they know it- it’s all a show. It’s always the excuse to avoid change and spend like the uniparty they are. There will be an opposite color wave as usual no matter the level of spending.
I’ve been putting off a car purchase for a while, but not too much longer. Will look to buy used from pre-pandemic years.
Unfortunately, it is money most of us would have wasted on useless consumerism had we not had the government hold it for us. This year I am using mine to buy a new set of tires. It comes in handy, last year we saved it for our 12yo future braces fund.
“Joe six pack? who cares what he wants”. “He will buy whatever we make”. hows that working out for stellantis?
More proof that Say’s Law is bunk.
U.S. factories are optimized for large, expensive vehicles, not the global sweet spot of compact, efficient, sub‑$25k cars. Which incidentally is what is in demand in the rest of the world. More buyers being forced into tighter used market. Same dynamic hit U.S. steel in1980s. That eventually resulted in painful shrinking, consolidation, and modernization in that industry. Autos in same maturity trap. The brutal truth is that autos are the last large US industrial sector mass layoffs are inevitable if the U.S. wants to be globally competitive again. To get rid of tariff crutch would require broad layoffs of both blue and white-collar auto workers and a massive CAPEX spend to become anything more than high-cost boutique producer. AI and robotics could make U.S. autos competitive — but ticket of admission shrinks the workforce and rewrites the industrial base. Choice is automate and survive vs. don’t automate and decline.
The U.S. auto manufacturers have been using industrial robots and automation for decades in their assembly plants. Any gains there will be marginal. Maybe they can eliminate lawyers and accountants with AI?
I had robots and automated machinery in my manufacturing plant back in the late 1980’s (I was the Plant Manager). Of course, new tech always comes along, but it usually adds only marginal increases in productivity.
Not particularly relevant, but I just got a flashback to the old Michael Keaton movie “gung ho”.
Regards
US factories can pivot to those same $25k cars, just like they pivoted to luxury models.
Despite the harsh winter?
Have friends with a salvage yard.
They have been very busy this winter.
What do you attribute the busy salvage yard to?
I think the fact that almost all returning drivers who scrap an elderly car buy used again. Right now the median car being scrapped is toward the end of the pre-GFC 2000s strong sales. There are not as many 2008-12 vehicles to take their place as the new clunkers. So drivers have tried to keep their cars going (but many are just too old now) or may to have finance a newer used car.
Howdy Folks. ” Every year, the industry salivates over tax refund season. But this year will be special. ” WOW. Don t let that quote apply to you..
Learn how to add and subtract the old school way. No special calculator is needed. And when it comes to your hard earned $$$$???? You should know exactly how many pennies are yours to keep.
Squirrels do it better….
I think more people will start re-learning to be thrifty if inflation begins to outpace incomes, if it hasn’t started already. But yes, people should know not to wait until then to start being careful and save, by living below their means, including if that means moving into smaller/shared housing.
Would love if I got refunds but then again, that also means I am not struggling. My problem is no matter how much I fine tune it, I struggle to get it close. Doesn’t help when in California and balancing that obligation, which now changes again this year as I get out of t-bills and into high yield savings account. Life would be so much easier, I make up, if I wasn’t in a state with brutal tax laws. Not going to get any easier in retirement, if anything becomes more complex, especially with declining brain cells. Admittedly there are countries that tax more, although usually you get something in return for it, but wouldn’t be surprised if the US tax code is most complex.
I’ve used to live in a state with city, county and state income tax and I didn’t see any benefits from them compared to states without those. Now in one with none of those taxes, it’s great to keep more of my money.
US Citizens seemingly get very very little for the tax we pay. People in CAR more so. I’d much rather pay many EU tax rates and get good roads, public transportation, healthcare and education that many/most offer.
I think public healthcare could also be an economic driver allowing people more freedom to take risk to innovate or drive value with different employers without potentially severe financial risk
Not sure of the accuracy but I heard that repossession rates have increased, and that some politicians were complaining about it. How does a tight wholesale market affect that? Would a company take back a car sold with subprime financing to later sell it at a higher price and to a better qualified customer?
I’ve no idea what dealers get for the loans and how the rating affects it
In terms of magnitude, repos aren’t even worth thinking about.
Subprime and repos are a MINUSCULE part of the market. Only about 40% of used vehicle sales are even financed, and of those, 15% are rated subprime. So only about 6% of total used vehicle sales involve subprime loans. For new vehicle sales, subprime is about 1% of all financing & leasing, which is 80% of total sales as leasing it hot. So about 0.8% of total new vehicle sales is subprime.
Nearly all vehicles that are repossessed were sold to subprime rated customers.
The reason why repos are up from the lows is that some big subprime specialized dealers imploded. Tricolor imploded in a mushroom cloud of fraud allegations, and lenders are now trying to get their units back.
https://wolfstreet.com/2025/10/17/ai-powered-tricolor-and-its-mushroom-cloud-of-fraud-allegations-are-a-sign-greedy-lenders-closed-their-eyes-for-years-not-a-sign-consumers-are-cracking-or-whatever/
But in the overall volume of auction sales, repos are minuscule. There are many auto auction houses in the US, a few are big, Manheim is the biggest. It runs about 7 million vehicles a year through it auctions, most of them are 2- and 3-year-olds from rental fleets and leasing companies. Total auction volume by all auto auctions is about 13-14 million vehicles a year.
https://wolfstreet.com/2025/10/17/ai-powered-tricolor-and-its-mushroom-cloud-of-fraud-allegations-are-a-sign-greedy-lenders-closed-their-eyes-for-years-not-a-sign-consumers-are-cracking-or-whatever/
But in the overall volume of auction sales, repos are minuscule. There are many auto auction houses in the US, a few are big, Manheim is the biggest. It runs about 7 million vehicles a year through it auctions, most of them are 2- and 3-year-olds from rental fleets and leasing companies. Total auction volume by all auto auctions is about 13-14 million vehicles a year.
I’m ready and willing to buy a used Tesla for $100 (must be running).
I’ll be a big spender and shell out $150 for a Cyber truck (ditto).