Tax refunds bring a ‘spring bounce’
Consumers planning to buy a car this year, while trading in a used vehicle, should seriously consider making the purchase between late February and late April, a top automotive economist says.
These first few months of 2024 are when Americans are filing their taxes and receiving refunds, so car dealers want the biggest inventory and the most choices available, said Jonathan Smoke, senior vice president and chief economic adviser for Cox Automotive.
As a result, activity usually starts in February and begins to slow down as April 15 nears, he said. “Consumers who get refunds tend to file early. Consumers who owe tend to file late. Used car demand is most closely aligned to when the refunds start to flow and then peak.”
The first six months of 2024 is when used cars will have their best resale value, he said.
“Tax refund season creates a much higher amount of demand compared to the rest of the seasons,” Smoke said “We refer to that phenomenon as the spring bounce.”
While used cars have a history of losing value each year, except during the COVID-19 pandemic, that law of depreciation is suspended for the six to 10 weeks that make up the heart of tax refund season, he said. “When we look at our forecast for 2024, we’re expecting that same phenomenon to occur,” he said.
Maximum trade-in value happens during this “sweet spot” of March or April, he said.
Used cars valued under $30,000 are most in demand and selling the fastest right now, said auto dealer Thad Szott of Szott Auto Group, which sells Chrysler, Jeep, Dodge, Ram, Ford and Toyota vehicles in Michigan.
Used car inventory has been increasing steadily over the past six months but appetite for cheaper vehicles is definitely in highest demand and hardest to find, he said. “We would love those vehicles.”
It is around March when vehicles have the least depreciation, Szott said. “Your car is going to depreciate, let’s say, $500 a month. Leading up to March, it will be less. It could depreciate $400 or $300 or $200. So a person who wants to trade in or sell a vehicle may see a 5% or 10% improvement on trade value.”
Yet most people searching for a trade-in won’t do so until March, when the market heats up, but car dealers prepare for the surge early, in January and February, Szott said.
Car dealers have the biggest new car supply since the COVID-19 pandemic began in 2020, and the industry has recovered. Incentives will be available throughout the year in the new car market, Smoke said. While deals are often great at the end of the year, when automakers are changing models and need to sell what’s left, this used-car tip can be helpful to consumers, too, he said.
“Affordability is still a limiting factor, especially with interest rates much higher,” Smoke said.
So, the more a car shopper can negotiate for a trade-in, the easier it is to offset the higher price for a new vehicle amid these interest rates.
Smoke predicted late last year that 2024 will be the best year to buy a new car.