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Will You Buy a Car With Your Tax Refund?

By John Rosevear - Apr 13, 2013 at 1:00PM

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A new survey says that a surprising number of folks plan to spend their tax refunds on car-related purchases this year. Is that a good idea? And what will that do for car sales?

Are you planning to spend your tax refund on a car?

I'm not sure that's the best idea for many people, but eBay (EBAY -2.23%) has discovered that quite a few folks are indeed planning to do just that.

The auction giant's eBay Motors division commissioned an online survey of 5,000 people to find out what they planned to do with their federal income tax refund this year. They found that more than one-third of drivers who responded plan to spend a portion of their refund -- in some cases a big portion -- on something related to vehicles.

That's a sizable amount of money. Is that likely to give a boost to new-car sales this year?

Quite a few new-car purchases coming
Here are some high points from eBay's findings:

  • For folks who indicated that they would be spending a portion of their refund on something vehicle-related, the average amount they plan to spend is over $1,000, 35% of their refunds.
  • Of those planning to spend refund money on something vehicle-related, 25% plan to buy a new or used car or truck.
  • Most of the rest plan to put the money toward maintenance of their current vehicle, for things like maintenance, repairs, or new tires.

That represents a fair number of people who will be wading into the new-vehicle (or at least new-to-them) market.

What will that do for auto sales?
It's likely to help new-car sales somewhat. U.S. auto sales took a huge swan dive during the economic crisis in 2008 and 2009, but they have been growing steadily for a few years now. They're still not quite back to the levels we saw last decade, though.

Most analysts expect U.S. "light-vehicle" sales -- sales of cars, pickups, and SUVs -- to total a bit over 15 million this year. That's still shy of the levels of nearly 17 million that were typical in the years before the crash, but it's up considerably from what we saw a couple of years ago.

The rate of growth in auto sales has been subdued since the beginning of 2013, though. General Motors (GM -2.19%) CEO Dan Akerson said last week that the payroll-tax increase that took effect in January, part of the "sequester" that went into effect as a result of the federal budget impasse, has dampened sales somewhat.

That doesn't mean that the automakers are having a hard time. Ford (F -3.20%) says sales of its Ford-brand vehicles were up 12.4% in the first quarter of 2013, with some of its latest models posting big gains. GM, Toyota (TM -0.47%), and others also posted decent increases in the first three months of the year, and Akerson said he expects sales to continue to be good despite the tax bite.

Better ideas for your tax refund
Still, I was surprised by the number of people who are getting four-figure tax refunds, and by the number who plan to spend four-figure chunks of those refunds on car-related purchases.

Let's face it: If you're getting a big tax refund, it probably means you overpaid. In effect, you gave the government an interest-free loan. Going forward, it's probably best to adjust your withholding so that you keep more of that money for yourself every month. If you like the idea of having a nice sum of money every spring, you can set up a plan to save or invest those additional dollars.

But if you are getting a big tax refund this year, and you haven't decided what to do with it yet, check out these good-sense ideas from my Foolish colleague Nicole Seghetti. She'll help you figure out how to get the biggest bang for your refund bucks.

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Stocks Mentioned

Ford Motor Company Stock Quote
Ford Motor Company
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Toyota Motor Corporation Stock Quote
Toyota Motor Corporation
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General Motors Company Stock Quote
General Motors Company
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eBay Inc.
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