Jeremy Robb on Tax Refund Season and Auto Demand in 2026

Tax refund season, affordability pressures, and shifting inventory dynamics are shaping the automotive market in 2026. On this episode of Inside Automotive, Jeremy Robb breaks down the key economic forces influencing dealer performance and consumer behavior this year.

Robb explains how rising tax refunds could extend the demand window for dealerships while affordability challenges continue to push more buyers—across income levels—toward used vehicles. He also explores the growing impact of off-lease EV supply, evolving lending conditions, and the early role of AI in dealership operations.

With macroeconomic uncertainty still in play, Robb offers a data-driven outlook on where opportunities exist, from increased service demand to emerging used EV adoption trends.

Discussion points include:

•  Tax refund trends and their impact on vehicle demand timing 
•  Ongoing affordability pressures and shifts toward used vehicles 
•  Rising off-lease EV supply and market opportunities 
•  Interest rates, lending conditions, and consumer financing challenges 
•  Potential service department gains from increased consumer liquidity 
•  Early-stage AI adoption and operational efficiency in dealerships 

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Transcript

Welcome And 2026 Setup

Jim Fitzpatrick 0:07

Welcome to Inside Automotive with Jim Fitzpatrick. Hey everyone, Jim Fitzpatrick. Thanks so much for tuning in to another edition of Inside Automotive right here at cbtnews.com. We're in tax refund season and dealers are watching how refund dollars could shape demand. The timing is critical. At this year's NADA show, Jeremy Robb, Chief Economist at Cox Automotive, outlined five major forces he believes will shape the auto industry in 2026. Jeremy joins us now to break down what he's seen in the tax refund data and to share his broader outlook for the year ahead. So, Jeremy, thank you so much for taking the time out of what must be a very busy schedule these days, uh providing great information to uh dealer auto executives, I should say, in the business. So thanks so much for joining us.

SPEAKER_00 0:53

Yeah, it's great to be here today. Thanks for having me. I I really appreciate it. There's there's a ton to talk about as always. You know, NADA was about a month ago, and this is a lot that's happened since then.

Tax Refunds Rise And Timing Matters

Jim Fitzpatrick 1:04

Yeah, it's in it's incredible. It's incredible. It's a it's amazing that we're even talking about you know, March already. I mean, the years flying by. What are you seeing uh so far in this year's tax refund data?

SPEAKER_00 1:16

Yeah, so the we expected to see tax refunds be pretty strong this year based off all the changes that were made last year in that one big beautiful bill act. Yeah. You know, what happened? There was a lot of changes that that came out uh overall, but they weren't retroactive. They didn't go in, they start they were retroactive, sorry, but they didn't impact people's paychecks right then.

Jim Fitzpatrick 1:39

Yeah.

SPEAKER_00 1:39

So now that we're in 2026, people are getting some benefit in their paychecks, and then they're also filing their taxes and seeing some pretty big changes and increases in their refunds that they're seeing too. So right now the average refund uh to consumers is up about 10% to about$3,800, as the government reported it last week. We're actually down in terms of our pacing in terms of the number of uh refunds that are or tax returns that have been filed so far this year. Okay. So there's many more to come out there. Um and we are really in the meat if you if we think about it of this filing season, so that over the next three to four weeks um through about the third or fourth week of March, we would expect to see a lot of consumers filing those refunds. Many of them are going to start to be getting, you know, these higher um income tax checks back to them. Um and then we might see this actually pan out for a while because some of the changes that were made are really more applicable to the state and local um taxes. Okay. Uh and that's that's very coastal. You know, like New York, California, places like that where it impacts.

Jim Fitzpatrick 2:52

Okay.

SPEAKER_00 2:53

Typically, those filers might file a little bit later in the season than than uh maybe people that have a more simple return. And so uh those people are expected to get a lot of money back too. So we we are just really starting to see the impact of this. Um we've seen it in some of our data, but the consumer impact is really starting to come through, and it's probably gonna live for uh several weeks now.

Jim Fitzpatrick 3:18

Okay, okay. Well that's good news. I mean, that's you know, that's money forthcoming. That's consumers in the showroom and online shopping for their cars once they get those checks, right? We we see every year. Yeah.

SPEAKER_00 3:29

Yeah, we we we just released this week that Cox Automotive Dealer Sentiment Index that we do um and where we survey dealers, and really one of the biggest pain points dealers talked about in Q1, and this was taken at the end of January, early February, were weather impacts on traffic. Okay. Um, you know, that was definitely impacted um, you know, a lot of the United States saw that, and um so we're moving out of that. I would expect to see um a lot more uh traffic and showrooms and things like that coming. And um, you know, we could use some good news. I think this tax refund data to consumers is pretty good news. They're not all gonna use that money to go out and buy a new or a new used car to them, yeah. Um, but a lot of them are, yeah, and and uh that will be beneficial to our industry.

Jim Fitzpatrick 4:15

Absolutely. I I can see that. Um diving into 2026, you know, the broader economic outlook, higher income households seem to be doing well while others are feeling the squeeze. Are you seeing that split play out in real time in vehicle sales as well?

SPEAKER_00 4:32

Yeah, I you know, how we I would describe that, how we see it in vehicle sales is kind of the trade-down effect. Um we've seen a move for the past several years of higher income consumers moving out of the new market into the used market as those prices have become higher. Um we can track that. And those are, you know, we still see a lot of demand um from lower income consumers, but typically, you know, 150,000, that kind of range consumer income group, we've seen a lot more demand on the used side um than in years past, too. So that's indicative of them, you know, maybe moving out of the new market into the used market. That's the affordability concern that we talk about. Sure. You know, affordability is not just car price, and that's a really important thing for all dealers to think about. One of the highest things that have uh things that have increased the most over the past several years is actually the rate of insurance uh on your consumer vehicle. And so, you know, you think about that maintenance and repair costs, all those things that really factors into what consumers can't afford and how they look at look at things. So that all-in cost matters a lot. And I think that's probably what's moving the needle with some of these higher-end consumers moving out of the new market a little bit more into the used market.

Inflation Tariffs And Consumer Stress

Jim Fitzpatrick 5:51

Sure, sure. We're seeing car payments now that are seven, eight hundred dollars. I think I just uh saw a study that said over 20% of all car payments are now over$1,000. And this is just we don't know where in the industry that this is going, where it's headed, or how we're even going to be able to deal with this. But how are consumer consumers handling that right now? And what's your expectation as we move further into 2026?

SPEAKER_00 6:15

Yeah, consumers like have been handling it the best they can, I would say, but that's the the strain on consumer balance sheets is real. Yeah. Um it's been felt. Um, you know, like when you talk about the stock market, everybody wants compound returns. They want, you know, 7% this year, 7% the next year, and that kind of thing. Inflation works the same way.

Jim Fitzpatrick 6:38

Yeah.

SPEAKER_00 6:38

You know, when you have four or five percent inflation this year and then the next year, yeah, it really eats into everybody, like how they're paying for food, for energy, for their house, for insurance, all of that. So, you know, that that factors into consumer psyche for sure. Um, we've been seeing more stress in terms of delinquency default rates on the automotive side, but really in most lending metrics out there as well. You know, the student loan repayments got turned back on back last year, too. Yeah. That's affected like a fairly significant part of the population, also. So there is a lot of stress out there, and and we're needing to see, you know, inflation move in the right direction. And we were starting to see that maybe prior to 2025 and inflation ticked back up a little bit last year. A lot of that was in response to the tariffs. Tariffs like, you know, they increased the rate of inflation across the economy a little bit more. And as we get into 2026, they're expected the impact from tariffs from 2025 are expected to continue to raise the the volume a little bit on that rate of inflation, at least in the first half of the year.

Jim Fitzpatrick 7:49

Yeah.

SPEAKER_00 7:49

Um and we're expecting to see that a little bit more on the new car side. Some of our data is showing that we're seeing a little bit higher MSRPs uh, you know, than we did last year with those those prices coming through more and the OEMs passing them through a little bit. But as we move to the back half of this year, we might start to see that come down a little bit, you know, without any other uh big event happening. Obviously, you know, the the the thing in Iran happening right now is a really big uh geopolitical risk too. So we have to deal with some of those things also. But just looking through the impact of inflation and what happens, uh, you know, it's gonna be felt probably more in the first half of this year, maybe a little bit less in the second half of the year. And, you know, then you have to think about that in terms of interest rates, that may give the Fed more room to cut as we get closer to the end of this year.

Fed Cuts And Auto Loan Rates

Jim Fitzpatrick 8:40

Right. Speaking of the Fed, I I think it's uh it's a safe conclusion that Trump will put somebody in that is thinking let's lower these rates if I'm a betting man on Trump. And uh while you know Powell leaves, uh I think that's in May, by the way, right? I mean, could we see it is in May? Yeah, could we see a lowering of rates just as soon as the new chief takes over, maybe in June or July?

SPEAKER_00 9:05

Yeah, I mean we could. So the betting markets are actually saying that they do expect the next rate cut to be in June. Okay. So not coming from now until then.

Jim Fitzpatrick 9:13

Yeah.

SPEAKER_00 9:14

You know, the the odd part about it for consumers and for our dealer body out there too, you know, the Fed cut rates three times last year from September through the end of the year. We haven't seen that translate a lot into lower interest rates out there.

Jim Fitzpatrick 9:28

That's right.

SPEAKER_00 9:28

Um, actually, just over the past week or so, the 10-year treasury yield went before 4% for the first time in quite some time. Um, and then adjusting to you know some of these geopolitical factors, it shot back up over 4% again. We saw mortgage rates that have started to come down. Sometimes that will lead the curve on seeing more translation into automotive loan rates.

Jim Fitzpatrick 9:50

Okay.

SPEAKER_00 9:51

Um, and we are seeing in some of our data lower automotive loan rates within the tiers, but we're seeing a higher subprime mix. And so that kind of offsets when we report out what the total interest rate is on the new car side or the used car side, it doesn't look quite as good as it may be underneath the surface.

Jim Fitzpatrick 10:10

That's right.

SPEAKER_00 10:10

So a lot of moving parts with interest rates, but we could start to see uh some of that come into the fore a little bit more as we get through you know March, April, May time period, I think.

Off Lease Wave And Used EV Supply

Jim Fitzpatrick 10:23

Yeah, yeah, for sure. Um of course we saw the the EV uh incentives leave the latter part of last year in September. Um what kind of an impact will that have in terms of off-leased vehicles and EVs? Obviously, many of the EVs are leased vehicles, incidentally, but uh but we saw that you know that EV market shoot up to 12% for a very you know one month period of time. Uh but now we don't have those incentives any longer. So will we see that have an impact in in used vehicle sales out there because those are not coming off of leases?

SPEAKER_00 10:58

Yeah, absolutely. You know, I spent before I came into this role, um, I spent most of my time in the used vehicle market in Mannheim and things like that. Um, I've been working for a few years building some of the modeling out where all these lease returns go because they're so important for the used vehicle market.

Jim Fitzpatrick 11:16

Yeah, for sure.

SPEAKER_00 11:16

And for the last couple of years, we've been really just ebbing through the impact from three years ago because most leases are three-year leases. Yeah. And back in 2021, 2022, we didn't have nearly as many new vehicle sales because they didn't have that production, that volume out there, right? They were able to really hone in on really profitable vehicles that were sold, which meant we didn't lease a lot of vehicles. We are at the bottom of that literally right now in Q1 of 2026, anniversarying that, where we're going to start to see, you know, off-lease supply grow a little bit in Q2 and more in the second half of this year.

Jim Fitzpatrick 11:58

Okay.

SPEAKER_00 11:58

But as it grows to your point, a lot more of those vehicles are going to become EVs into the market.

Jim Fitzpatrick 12:04

Yeah.

SPEAKER_00 12:04

Um off-lease EV maturities last year were about 5% of the total.

Jim Fitzpatrick 12:09

Okay.

SPEAKER_00 12:10

For 2026, they should be about 12% of the total. And then by the time that gets to 2027 or 2028, it's likely to be over 20%. Because last year, you think about 2025, new EV lease penetration rates were, I think, running over 50%.

Jim Fitzpatrick 12:27

Wow.

SPEAKER_00 12:27

So a lot of that, once we see this volume come in 2026, we're going to be handling it for quite some time. I'm actually pretty positive on it. You know, I think those those EVs, they are not EVs from back in 2018, 2019, 2020. Yeah. You know, they'll they'll run further, yeah. Um, you know, their battery lives is longer, all of that. Um, they've got way more capacity technology in them than than a lot of cars. And I think there's consumers out there that will want them. But, you know, a lot of dealers, it it that's probably we're still in the the impact of like geographically speaking, we've got hot pockets and you know, no pockets and things like that. I don't know that that's gonna change a lot, but there will be opportunity for dealers that want to lean into that, and I think we're gonna see consumer adoption on the used vehicle side probably from the price point too, you know, grow over the next couple of years.

Jim Fitzpatrick 13:21

Yes, yeah, for sure. And um, and so dealers out there, get ready for these used EVs coming. You're gonna be in the used EV business, whether you like it or not, right? I mean, that this is this is not going away. In fact, to your point, it's gonna be it's gonna be growing over the years as these cars get longer range, there's more of an infrastructure every year out there in for EVs. And um and there's a number of manufacturers that are still very bullish on EVs, right?

SPEAKER_00 13:48

So Yeah, there are. We've had, I mean, obviously a lot of you know ebb and flowing of new car EV production, strategy, where we're gonna go. Right. Uh we've got the China piece of it, elephant in the room, what how is that gonna impact us?

Jim Fitzpatrick 14:03

Oh, yeah.

SPEAKER_00 14:04

All those are like we have to figure that out. But the boots on the ground, these EVs, they're coming this year.

Jim Fitzpatrick 14:11

Yes.

SPEAKER_00 14:11

Um back to back to dealers. And you know, by and large, the biggest input into dealer supply has been that three-year-old off lease. It's just consistent, right? Every month uh turns in there. So I think um, you know, that that's that's just gonna be a thing we're gonna deal with. There'll be a lot of Teslas that come back into the marketplace.

Jim Fitzpatrick 14:33

Sure.

SPEAKER_00 14:33

But as we move through this year and the next year, you're gonna see more diversification of you know, uh 4GM, Kia, Honda, all these different types of EVs that are used come into the marketplace, and that'll open up, I think, opportunities both on the dealer side and for consumers there too.

Fixed Ops Outlook And Refund Repairs

Jim Fitzpatrick 14:50

Right, right. Not so much for fixed ops because these things don't have the same requirements, but that that's okay. There's still 300 million uh ice vehicles on the road that need to get fixed. And with people keeping them longer, uh fixed ops should be fine for the foreseeable future, right?

SPEAKER_00 15:08

Yeah, there they really should. And in fact, you know, one of the things to that to really kind of drive the point home on the fixed op side, a lot of people have putting off some of these repairs. Yeah. You know, yeah, um, like because of the cost or we talk about consumer balance sheets and all that. We expect uh a lot of them um will probably use some of their tax refund dollars to maybe do some of that. So there may be more demand on that part of the market um coming up quickly too, because of this growing um you know, money in the pocket of consumers.

Jim Fitzpatrick 15:42

That's yeah, good point. Hey, one last question. Um, you've described 2026 as kind of an inflection point for AI adoption. Where are dealers already seeing measurable ROI and how important will AI-driven productivity gains be um be offsetting some of the slower labor force growth that we may see out there?

SPEAKER_00 16:06

Yeah, so you know, we talk about like bifurcation and and how AI comes into play. You know, a lot of big businesses have leaned heavily into investing and using AI. Um, some of the data suggests smaller businesses maybe haven't quite as much. Okay. So your productivity gains could be skewed in that market also.

Jim Fitzpatrick 16:26

Okay.

SPEAKER_00 16:27

Um, you know, some I was at a Fed policy conference actually, or an economic policy conference last week, and had they had three Fed governors talk, but uh several of them have already said they still don't think the productivity gains we're seeing right now are actually coming from AI, which are pretty interesting. Which is if that's true, it means it's going to be more supportive of the economy a few years out from now uh than we have. So that's a good news to the economy overall. Um and it brought it's it's it's a it's a rate to a way to increase the growth rate in the economy that usually doesn't cause a lot of inflation, right? So that could be very beneficial on the on dealers themselves, you know, if they're leaning into it more. Um most everybody that we talk to that leans into it does see productivity gains from it. That gets hard to measure. And I know that firsthand. We talk about trying to measure it, uh hard to measure for everybody. But if you talk to your technicians or your workers or people that use it, yeah, almost all of them can tell you, yeah, I can handle more, I can do more. That kind of thing. So whether or not we're actually able to measure it, I do think the anecdotal evidence is very supportive of the productivity gains for those people that are trying to figure out how to use it. And and this is the year. That's kind of why we talk about the inflection point. We've we've done the investment in the economy. This is the year everyone's gonna start to really try to figure out how to use it. I am confident that there are going to be groups out there that really figure out how to use it. I agree. When we get to a year from now, I bet they I bet their operations are transformed and they probably look a little bit differently than others. But we don't know who that's gonna be.

Final Takeaways And Sign Off

Jim Fitzpatrick 18:10

That's right. That's right, that's right. It it is is very exciting to follow for sure. It's very exciting to use. There's not a day that goes by that I'm not, you know, going to my assistant here and asking for some help, and uh it nails it nails it every time. So, Jeremy Robb, Chief Economist at Cox Automotive. Thank you so much for giving us so much time here at CBT News. Uh we look forward to the next time together. So stay well. Thank you so much.

SPEAKER_00 18:33

Thanks, Jim. Appreciate it.

Jim Fitzpatrick 18:36

Thanks for watching Inside Automotive with Jim Fitzpatrick.