On Wednesday, Jan. 7, US Treasury Secretary Scott Bessent addressed a major headwind to the US auto industry — affordability — saying the administration is working on a significant tax cut that could help many buyers.
The move is surprising given that President Donald Trump very recently called the affordability crisis in the US a farce. However, Bessent’s comments suggest the administration is focused on improving accessibility during an election year.
In 2025, tariffs and the threat of price increases drove many car buyers to buy a new vehicle, resulting in the strongest market in years.
Retail consumers spent $620 billion on new vehicles last year, according to Automotive World, citing data from JD Power, up nearly 6 percent from the previous year. The increase was driven by a threat that never materialized.
“Despite much speculation about large increases in new car prices due to the tariffs, actual increases, as correctly anticipated by JD Power, have been muted,” the firm said.
But despite the reduced impact of tariffs, affordability remains an issue.
“The industry is not without its challenges, however. Pressures on affordability remain significant, with monthly finance payments reaching a new record for December at $776,” said Thomas King, president of OEM solutions at JD Power.
A combination of high prices and stubbornly high interest rates on loans is causing Americans to turn to riskier credit agreements to purchase new cars, putting a strain on their wallets.
On Wednesday, US Treasury Secretary Scott Bessent offered some much-needed relief to car buyers struggling to afford a new vehicle.
The Treasury announced it is implementing a no-tax-on-US auto loan interest rule that gives eligible taxpayers a $10,000 a year deduction on auto loan interest on cars purchased during Trump’s second term.
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GM: 2.83 million vehicles (+5.1% year-on-year); 17.3% market share
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Toyota: 2.52 million vehicles (+8.4% YoY); 15.5% market share
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I see: 2.18 million vehicles (+5.6% YoY); 13.4% market share
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Hyundai: 1.84 million vehicles (+7.9% YoY); 11.3% market share
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Honda: 1.42 million vehicles (+0.6% YoY); 8.8% market share
Source: Cox Automotive
“For millions of Americans, a car isn’t a luxury, it’s how you get to work, school and childcare,” Bessent told X.
“This deduction helps lower monthly costs and makes car ownership more affordable when families need it most. The tax cut also supports American workers by applying only to vehicles assembled in the U.S., strengthening domestic manufacturing.”
Bessent said the Treasury and IRS are issuing clear rules on the tax break “so taxpayers know exactly how the deduction works.”
Automakers have relied on pricing to help address consumer affordability issues in 2025.
“Automakers are offering healthy incentives to maintain sales. Prices are rising, but as we see in the broader retail markets, there is sufficient demand and generous incentives, and that’s driving the market,” Cox Automotive executive analyst Erin Keating said earlier this year.
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However, as the year progressed and the tariff situation became clearer, stimulus spending declined.
Average manufacturer incentive spending per vehicle in December was $3,433, an increase of just $77 over the same period last year. Incentive spending averages about 6.5 percent of a vehicle’s MSRP, up 0.1 percent.
To make up the gap, more customers are turning to extended 84-month loan terms, which accounted for 10.1 percent of financed sales in December, according to JD Power.
This is the second highest level on record for the month after 2021.
Most financial experts recommend spending no more than 15% of your monthly income on a vehicle.
In addition to limiting car payments to about 15 percent of monthly salary, financial experts also recommend that buyers aim for a 20 percent down payment, a loan term of 36 to 48 months, and expenses (including insurance) between 8 percent and 10 percent of gross monthly income.
According to a MarketWatch Guides survey, about 10 percent of drivers say they spend 30 percent of their monthly income on driving, while another 12 percent said they “found themselves living paycheck to paycheck because of the financial strain on their cars.”
Nearly half of American drivers cite car expenses as the reason they can’t save money, and the average American spends about 20 percent of their monthly income on car loans, fuel, insurance and maintenance.
A Bank of America survey this summer found that among households with a monthly car payment, 20 percent have a payment of more than $1,000.
Baby Boomers, Generation X and older Millennials have seen declines in the percentage of their members paying more than $2,000 per month for their vehicles over the past few months.
Generation Z and young Millennials have seen an increase in members paying more than this amount.
Bank of America also reported an increase in auto bills of $2,000 per month among people making less than $50,000 and between $50,000 and $100,000. Meanwhile, this type of spending has declined among people earning more than $100,000.
“Payment data from Bank of America shows that average car payments are already more than 30% higher than the 2019 average and have now outpaced prices for both new and used cars, possibly as there is a push toward more expensive cars,” analysts Taylor Bowley and David Tinsley wrote.
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This story was originally published by TheStreet on January 8, 2026, where it first appeared in the Economy section. Add TheStreet as a favorite source by clicking here.
