On Wednesday, January 7, US Treasury Secretary Scott Bessent addressed a major headwind for the US auto industry — affordability — saying the administration is working on a significant tax cut that could help many buyers.
The move is surprising, as President Donald Trump recently called the US affordability crisis a hoax. Still, Bessent’s comments suggest the administration is laser-focused on improving affordability during an election year.
In 2025, tariffs and the threat of rising prices led 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, which cited JD Power data, an increase of nearly 6% from the previous year. The rise was driven by a threat that never really materialized.
“Despite much speculation about large increases in new vehicle prices due to tariffs, actual increases, as correctly predicted by JD Power, have been muted,” the firm said.
But despite the muted impact of tariffs, affordability remains an issue.
“The industry is not without its challenges, however. Affordability pressures remain significant, with monthly finance charges reaching a new record for the month of 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 has Americans turning to riskier credit deals to make their new car purchases, straining 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 that it is implementing a No Tax on US Car Loan Interest rule that offers eligible taxpayers a $10,000 annual deduction in loan interest for 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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Ford: 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 is not a luxury, it’s how you get to work, school and childcare,” Bessent said on X.
“This cut 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 United States, and boosts domestic manufacturing.”
Bessent said the Treasury and the IRS are issuing clear rules on the tax deduction “so taxpayers know exactly how the deduction works.”
Automakers have relied on incentive pricing to help address consumer concerns about affordability in 2025.
“Automakers are providing strong incentives to keep sales flowing. Prices are trending higher, but as we’re seeing in the broader retail markets, there’s sufficient demand and generous incentives out there, and that’s driving the market,” Cox Automotive Executive Analyst Erin Keating said earlier this year.
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However, as the year passed and the tariff situation became clearer, incentive spending decreased.
The average manufacturer incentive spend per vehicle in December was $3,433, which represents only an increase of $77 from the same period a year ago. Incentive spending on average represents about 6.5% of a vehicle’s MSRP, up 0.1%.
To make up the gap, more customers are turning to extended loan terms of 84 months, which accounted for 10.1% 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 that you spend no more than 15% of your monthly income on a vehicle.
In addition to limiting your car payments to about 15% of your monthly paycheck, financial experts also recommend that buyers aim for a 20% down payment, a loan term of 36 to 48 months, and expenses (including insurance) between 8% and 10% of your gross monthly income.
According to a MarketWatch Guides survey, about 10% of drivers say they spend 30% of their monthly income on driving, while another 12% said they “found themselves living paycheck to paycheck because of the financial burden of their cars.”
Nearly half of American drivers cite car costs as the reason they can’t save any money, and the average American spends about 20% of their monthly income on car loans, fuel, insurance and maintenance.
A Bank of America survey from this summer found that among households with a monthly car payment, 20% have a payment of more than $1,000.
Baby Boomers, Gen X, and older Millennials have all seen a drop in the percentage of their members paying more than $2,000 a month for their vehicles in the past few months.
Gen Z and younger Millennials have seen an increase in members paying more than that amount.
Bank of America also saw an increase in car bills of $2,000 a month among people making less than $50,000 and between $50,00 and $100,000. Meanwhile, that type of spending declined among people making more than $100,000.
“Bank of America payment data shows overall median car payments are already more than 30% higher than the 2019 average and have now outpaced both new and used car prices, 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 Preferred Source by clicking here.
