On Wednesday, Jan. 7, U.S. Treasury Secretary Scott Besant addressed a major headwind for the U.S. auto industry — affordability — as the administration is working on a significant tax break that could help many buyers.
The move is surprising given that President Donald Trump recently called the US affordability crisis a hoax. Still, Besant’s comments suggest the administration is laser-focused on improving affordability during an election year.
In 2025, the threat of tariffs and rising prices prompted more car buyers to buy new vehicles, resulting in the strongest market in years.
Retail consumers spent $620 billion on new vehicles last year, according to Automotive World, citing JD Power data, a nearly 6% increase over the previous year. This growth was driven by a threat that never really materialized.
“Despite much speculation about a large increase in new vehicle prices due to the tariffs, the actual increase, as J.D. Power correctly predicted, has been muted,” the firm said.
But despite the muted effect from tariffs, affordability remains an issue.
“The industry is not without its challenges, however. Affordability pressures remain significant, with monthly finance payments hitting a new record for the month of December at $776,” said Thomas King, president of OEM Solutions at JD Power.
The combination of high prices and unsustainably high interest rates on loans has Americans turning to risky credit deals to buy their new cars, straining wallets.
On Wednesday, US Treasury Secretary Scott Besant offered some much-needed relief to car buyers struggling to afford a new vehicle.
The Treasury announced that it is implementing the No Tax on U.S. Car Loan Interest rule that provides qualified taxpayers with a $10,000 per year deduction in auto loan interest for cars purchased during Trump’s second term.
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GM: 2.83 million vehicles (+5.1% over the 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 isn’t a luxury, it’s the way you go to work, school and childcare,” Besant told X.
“This cut helps lower monthly costs and makes car ownership more affordable for families when they need it most. The tax cut supports American workers by applying only to vehicles assembled in the U.S., while strengthening domestic manufacturing.”
Bessant said the Treasury and the IRS are issuing clear rules on the tax break “so taxpayers know exactly how the deduction works.”
Carmakers relied on incentive pricing to help address consumer affordability concerns in 2025.
“Motor manufacturers are offering healthy incentives to keep sales flowing. Prices are trending higher, but as we’re seeing in the broader retail markets, there’s plenty of demand and generous incentives, and that’s driving the market,” Erin Keating, executive analyst at Cox Automotive, said earlier this year.
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However, as the year progressed and the tariff situation became clearer, the incentive spending decreased.
Average manufacturer incentive spending per vehicle in December was $3,433, an increase of just $77 over the same period a year ago. Incentive spending on average represents about 6.5% of a vehicle’s MSRP, a 0.1% increase.
To bridge the gap, more customers are resorting to extended 84-month loan terms, which accounted for 10.1% of financing sales in December, according to JD Power.
That’s the second-highest level on record for the month since 2021.
Most financial experts recommend not spending more than 15% of your monthly income on a vehicle.
In addition to capping your car payments at about 15% of your monthly take-home payment, financial experts recommend that shoppers aim for a 20% down payment, a 36- to 48-month loan term, and expenses (including insurance) between 8% and 10% of your gross monthly income.
According to a MarketWatch Guides survey, nearly 10% of drivers say they spend 30% of their monthly income on driving, while another 12% said they “find themselves living paycheck to paycheck because of the financial stress of their car.”
About half of American drivers cite car expenses as the reason they can’t save any money, and the average American spends about 20% of their monthly income on auto loans, fuel, insurance, and maintenance.
A Bank of America survey this summer found that 20% of households with monthly car payments paid more than $1,000.
Baby Boomers, Gen X, and older Millennials have all seen declines in the percentage of their members paying more than $2,000 a month for their vehicles over the past few months.
Gen Z and younger millennials saw an increase in the number of paying members above that amount.
Bank of America also saw an increase of $2,000 a month in auto bills among people making less than $50,000 and between $50,00 and $100,000. Meanwhile, that kind of spending fell among people earning more than $100,000.
“Bank of America payment data shows that overall median car payments are already more than 30% above the 2019 average and are now outpacing both new and used car prices, likely pushing there toward more expensive cars,” analysts Taylor Bowley and David Tins 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.
