Feb. 20, 2026 | SCOTUS strikes down Trump tariffs; understanding IRS negative equity decision

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Welcome to daily drive for Friday,

February 20th, 2026,

I'm Kellan Walker in Las Vegas.

Today on the show,

the Supreme Court strikes down

many of President Trump's tariffs.

Meanwhile, tariff driven price hikes

are already hitting dealer lots.

And VW workers in Chattanooga

ratify their first UAW contract in a landslide.

Plus Automotive News reporter,

John Hutter explains why the IRS

is excluding negative equity

from the new auto loan interest deduction.

The IRS is already kind of picking and choosing

if they're saying, well, a service contract

counts as part of a car loan,

but negative equity doesn't.

Well, it's kind of like, well, what's the distinction there?

Why wouldn't you just simplify it?

Let's run through all the news you need to know

to keep up in the auto industry.

The US Supreme Court has struck down

many of President Trump's tariffs,

ruling they were issued illegally

under the 1977 Emergency Powers Law.

The six to three decision affects reciprocal tariffs

and duties on Canadian, Mexican, and Chinese goods.

But tariffs on vehicles, auto parts, steel,

aluminum, and copper are still in place.

The auto industry paid about $8.6 billion

through October 2025 in duties

that are now deemed unconstitutional.

That's according to PWC.

The court didn't say whether refunds are owed

or how they'd be distributed.

We'll hear more on this story in a minute

with our own John Irwin.

Despite that ruling,

Trump's tariffs are already hitting dealer lots hard.

New data from Catalyst IQ shows vehicles assembled

in Canada have seen the steepest price hikes.

Sticker prices jumped nearly $4,000

or almost 10% since October.

Japanese built vehicles rose about $3,300

while German built models increased over $2,800.

Vehicles from Mexico were up more than $1,500.

Rick Wainshell, Vice President of Analytics at Catalyst IQ

says automakers used model year changeovers

to quietly raise prices.

About $1,200 more aggressively than last year.

Toyota's Andrew Gilliland warned in January

that further increases are coming,

saying manufacturers can't hold out much longer

from passing tariff costs to consumers.

And Volkswagen workers in Chattanooga

have ratified their first contract with the UAW

in a landslide vote.

UAW President Sean Fane says 96% of workers

approve the four-year pact,

which takes effect February 23rd.

The deal delivers a 20% wage increase over five years,

a $4,000 ratification bonus,

and annual bonuses of $2,500.

It's a major victory for the union

in its decades-long push to organize

foreign-owned plants in the South

and caps nearly two years

since workers first voted to join.

And those are today's headlines.

You could read more about all those stories

and follow along with the latest news at AutoNews.com.

Now let's dig deeper into that Supreme Court decision.

Joining me is John Irwin,

who's been covering the story for us at Automotive News.

John, welcome back to Daily Drive.

Thanks for having me.

So John, the Supreme Court didn't spell out

how these refunds would work for these tariffs

that have now been deemed unconstitutional.

What are you hearing about what happens next

for automakers and suppliers

who have already paid billions in these duties?

Yeah, it's gonna be interesting to see how this plays out.

I think a lot of people were expecting the Supreme Court

to at least mention a little bit

about how the refund process might work

or at least direct to the federal government

to say that they should refund businesses

that have paid these tariffs.

There was no mention of it.

How that process works is really up in the area.

And I've talked with a few trade experts

who have basically said,

we're just waiting to see

how the Trump administration might approach this,

whether they could voluntarily,

if they want to set up a refund program,

whether they choose to do that or not,

is still up in the air as of taping.

But no matter what happens,

just given the scale of these tariffs,

it's going to be a messy process.

I think that's pretty much accepted across the board.

That was something that the lawyers advocating

for the businesses who brought this lawsuit

against the Trump administration even acknowledged.

Brett Kavanaugh and his dissent noted that as well,

that this is gonna be,

the refund process will be messy no matter what,

just given the scale.

We're talking billions and billions of dollars

across industries, across sectors.

There are goods being shipped right now

in the middle of the Pacific Ocean

or that are in port right now.

Where the whole idea was that they were gonna implement it.

You don't have to pay the tariff on those goods.

Now they might not have to,

do they have to immediately?

There's all sorts of questions about how this will work,

how quickly it'll happen.

I think most people are expecting, no matter what,

there will be more lawsuits.

So no matter what, it's gonna be a messy,

probably lengthy process.

That said, I know a lot of people in the auto industry,

especially suppliers, I think are generally speaking,

are the ones who have paid these tariffs

more than maybe automakers who are more susceptible

to the auto tariff, which is still in effect.

A lot of these suppliers are kind of expecting that,

maybe eventually they will get that refund,

but what that looks like,

how they have to work with their automakers

who have reimbursed them for their tariff costs.

I mean, it's a very messy, convoluted process.

It's gonna take weeks, months, maybe years to figure out.

Now, the ruling leaves vehicle

and auto parts tariffs in place

since they were issued under different legal authorities,

does this decision give companies any new legal footing

to challenge those remaining tariffs,

or are we looking at a completely separate fight there?

I think generally speaking, we're looking at a separate fight.

And I've talked to a couple of trade experts today

who note that some people would argue

that maybe some of the ways that some of these other tariffs,

like section 232 tariffs on steel, aluminum,

the vehicles, auto parts,

there are some who might argue

that the way they've been implemented,

sort of pushing the boundaries of what the law says

the president can do, but it's a little less cut and dry,

maybe than a lot of legal experts viewed

this particular case when it came to reciprocal tariffs.

Section 232 authority, which is used for vehicles

and auto parts, has been previously used

by other administrations, and they followed,

it's been in place since 1962.

There's a whole process where there has to be an investigation

done by the Commerce Department

on a national security ground.

And it's a very, it's a somewhat lengthy process

and a little bit more well-established,

whereas the Trump administration

was the first one to ever use this 1974 law,

which was under question today,

to use it for tariffs as opposed to,

in the past, other presidents have used that law

to implement sanctions or embargoes on other countries.

So, whether it gives some new footing,

I guess, remains to be seen.

That said, given, we expect the Trump administration

to pursue new tariffs to kind of make up

for the lost tariff revenue that they're seeing today.

A lot of those new tariffs though,

they're a little more limited in scope.

Maybe they can issue something right away,

but then they need Congress to extend it

or there needs to be an investigation that has to be done.

I think a lot of suppliers especially,

they've been during the tariff saga

over the past several months,

they've been sort of worried that, okay,

there's an announcement about a new tariff

and then it goes in effect a few days later.

That, at least for now,

maybe seems like that threat is kind of dissipated.

There might be new tariffs,

but they might be a little more limited in scope

or there'll be more time needed to have to implement them,

which gives those businesses more time to adapt.

So that's sort of where we're standing right now.

We'll see what the White House does.

We'll see how they respond,

what they might implement instead.

But yeah, there's a lot going on

and I'm sure suppliers, automakers are paying

very close attention to where things go from here.

All right, John Irwin, thank you so much for joining me.

Thanks so much.

Coming up, a deeper dive into the IRS decision

on negative equity and the new auto loan interest deduction.

That's next on Daily Drive.

The auto industry is the most disrupted

on the planet right now.

On this week's episode

of the Automotive News Shift podcast,

we hear from Dan Hirsch, global co-leader

of automotive and industrial practice at Alex Partners.

He breaks down the firm's 2026 disruption index

and explains why tariffs, geopolitical tensions,

and the rise of the Chinese automakers

are leaving global executives struggling

to plan for the future.

Senior executives, they are either finding themselves

in a spot where they have to redefine themselves,

which could be very difficult

when you're really well established,

or they're going to find themselves

in a very different role or in a very different company.

I'm Molly Boygon.

Join me on Shift,

available this Sunday wherever you get your podcasts.

Welcome back to Daily Drive.

I'm Kellan Walker.

The IRS says consumers can deduct interest

on service contracts financed

with their auto loan this tax season,

but not on negative equity rolled into the loan.

That can be a problem when nearly 30%

of fourth quarter trade-ins had negative equity.

Automotive News Retail FNI reporter, John Hutter,

talked with our own Jake Nier about it.

Jake reached him at his home office

near Grand Rapids, Michigan.

John Hutter, welcome back to Daily Drive.

Hey, great to be here.

So this is a really interesting decision here by the IRS,

but before we dive into that,

remind us how this new auto loan interest deduction

actually works.

I mean, who's qualified?

What's the potential benefit for consumers

buying a new vehicle?

Sort of the basics here.

Basically, last year, Congress passed

and President Trump signed the One Big Beautiful Bill Act,

which had a lot of tax changes.

And one of them that they added was a,

you could deduct auto loan interest

on American-made vehicles.

And you could do it

even if you were taking the standard deduction,

which I mean, basically every American,

I mean, it's like 90% of American taxpayers do that.

So anyway, so you can deduct starting with this tax season

because they made it retroactive

for any car you bought in 2025.

You can deduct up to $10,000 each year

on any interest you paid for a vehicle.

It has to have final assembly in America,

and then it has to be used personal use.

And if you make more than 100 grand,

or if you're a household with more than 200 grand,

it starts tapering off how much you can actually deduct.

But so, yeah, and it'll run through the 2028 tax year,

so unless Congress renews it.

So the IRS says that this tax season,

you can deduct interest on service contracts,

but not on negative equity rolled into the loan.

Why is that distinction such a big deal

for dealers and the industry?

Yeah, and it's, I mean, the IRS was kind of in a tough spot

because they're trying to do actual formal regulations

on all this stuff, but like they also,

since the bill was passed in the summer,

and it was retroactive,

they kind of had to come up with something

for this tax season.

So anyway, they've said that, yeah,

you'll be able to deduct service contracts, sales tax,

any of the interest that you're paying

on that part of the loan,

but you can't do negative equity.

And what's tough about that is that there's,

a lot of people do have negative equity rolled

into their car loan, especially if you bought,

maybe in the last couple of years,

when prices were kind of elevated

because of the lack of inventory,

you might still owe more on the trade-in vehicle

than your car is worth, than that car is actually worth.

So you're rolling into the new loan.

Under this, yeah, you couldn't deduct it,

which is going to kind of raise,

I would imagine some issues for both lenders and consumers

because you've got to figure out how much

of your interest actually went to that negative equity

versus the other parts of the loan.

So that's going to be kind of a complicated thing

I would imagine for the, because my understanding,

and my car loan didn't have negative equity on it,

so I can't say this for sure,

but my understanding is you just get your car,

you make your car payment,

and it says your, I would imagine your principal interest,

but it doesn't say what the interest is actually,

it's not itemized like that.

So somebody's going to have to figure out how it's,

the good news for dealers is the service contract

being deductible is interest is huge

because that too is usually financed as part of a loan.

It's something that a lot of dealers sell

on a lot of vehicles.

And so that's a big, you know,

that's a big perk for consumers and dealers.

Good job getting that flex in there, John.

Yeah, all right.

Well, you know, so as we've talked about NADA and AFSA

are pushing back pretty hard on this

as the IRS looks at adopting formal rules as well.

What is their core argument as sort of the main trade groups

here for why negative equity interest should be deductible?

Right, and it kind of comes back to,

and that's the thing.

I mean, everybody's kind of out of luck on this

as far as I know for this year,

but the actual rules is still in place.

So for future years, it might well change

and that's where AFSA and NADA are trying to make an impact.

And really the issue is the complexity,

you know, there's the complexity factor

that somebody's gonna have to split this stuff out of the loan.

AFSA has said, well, look, we don't want you to do this,

but if you're gonna make us do it,

at least let us do it proportionally,

where, you know, we can just say,

okay, 10% of it is negative equity or whatever.

But yeah, they're hoping that it doesn't happen.

And one of the, just because of that issue

and their argument, especially AFSA's,

is well, the bill that enacted this thing

just says any interest on the car loan.

And so, you know, and since they're already,

the IRS is already kind of picking and choosing

if they're saying, well, a service contract

counts as part of a car loan, you know,

but negative equity doesn't.

Well, it's kind of like, well, what's the distinction there?

Why wouldn't you just simplify it

and just make everything, you know,

any interest with the car loan is subjective.

So that's kind of where they're both going with it right now.

The language, yeah, I mean, to me,

it does seem a little weird to pick and choose like that,

that if you're gonna have this one thing

that isn't related to the actual metal of the vehicle

being sold bundled into it,

then, you know, why wouldn't anything else

tied into the deal also count?

So, I mean, I think there's an argument,

there's certainly an argument there

and from the convenience factor

and not having to, you know, upset how consumers,

you know, to make it easier for consumers as well,

because if the lenders don't really tease it out,

the consumer will probably have to do the math themselves.

And that's, you know, I mean,

I read about finance for a living

and I couldn't do it myself without, you know,

like the finance calculators.

Sure.

So I am curious, John, you know,

when it comes to the role of the dealerships in this,

the FNI office and so forth,

what kind of role are they playing in this process?

I mean, do you get the sense that this is a headache

for them in terms of like trying to walk

their customers through what's, you know,

available to them, what they can do,

and if things change, you know,

does that cause even more headaches in some ways?

Right, and I haven't really dug as much into that one

because the bigger issue for dealers,

I would imagine this tax season is just

because customers are probably gonna have

a lot bigger refunds than usual, which is a benefit.

So I don't really dug into how many of them

are having to coach consumers on, you know,

filling out their tax returns yet on this thing.

But yeah, but I would imagine there is, you know,

certainly an education role for the dealership,

you know, in terms of kind,

if the customer does have questions,

you're gonna need to be prepared for that.

So that means, you know, that, I guess,

you know, that does, I guess, complicate life

for a dealership, you just need to be, you know, up to it.

Also, it's kind of, I guess to some degree,

it's kind of to your interest

because if you've got an eligible vehicle on the lot

and you're, you know, you're trying to sell it to a consumer

and you can say, well, look,

you can deduct the interest on this one, you know.

So there's a benefit as well.

Yeah, that makes sense.

I guess on that kind of line of thinking,

beyond negative equity,

what is, what's one thing that dealers need to know

about this deduction as they're working with consumers

this tax season going forward?

You know, what is maybe the one nugget

that they should take away from this?

You've got to make your life harder.

I would say there's two actually.

One is just knowing what vehicles are eligible

in which I think the IRS has issued guidance

where there's a, one of the stickers on the vehicle,

you know, the mandatory stickers has,

if the location it was built at.

And that's all, that's all that matters

is that really the final assembly.

So that should be pretty easy to figure out.

Just if it was built in the US, you're good to go.

You don't have to worry about,

it's not like the tariff thing where you gotta worry about

where maybe certain parts came from or something like that.

It's just if they built the thing here, you know,

they put it all together here, we're good.

The other thing I think that people,

dealers are gonna want to pay attention to

is just who's eligible.

It's pretty loose.

Like you can buy it for a family,

a family member using the vehicle is okay,

like your kid or something like that.

And you're even allowed a little bit of usage.

Let's say you have a side hustle as a ride share driver

or, you know, or a door dash or something like that.

As long as I think it's 51% is personal use,

you're okay to count the vehicle.

They're not gonna be a stickler on,

well, this is a commercial vehicle

because you're using it for a job, you know,

20% of your life or something like that.

So those are, I think those are gonna be the two things

to really hone in on with consumers

and you can kind of reassure them

or you can say, well, look, no, you're, you know,

you're gonna be an Uber driver in this thing

for 80% of your time, you can't deduct the interest.

So, you know, things like that.

So finally, John, the IRS has a hearing scheduled

for Tuesday of next week on this.

I'm curious what you're watching for

and do you think they could actually change course

on this negative equity issue?

You know, I think so just because it's,

oh, well, I'm gonna be watching to obviously hear,

AFSA is speaking, I don't think NADA is,

but AFSA, which represents all the auto lenders

certainly is gonna be, is one of the guests scheduled.

So I'm gonna be watching, you know,

watching for their argument.

Yeah, I think they could reverse course.

I think there's just a, you know, if you're trying to,

you know, if the Trump administration is serious

about kind of getting rid of bureaucracy

and making things more consumer friendly, you know,

just really simplifying the rules to just, okay,

is the car American made and used personally?

You know, does it meet the criteria in the law?

All right, well, look, just any of the interest

tied to the loan is all right.

You know, so I think there could,

the one thing that I think could maybe deter them

from doing that is, well, let's say it's negative equity

on a car that isn't American made, you know,

which I mean, good luck trying to trace that on,

you know, a trade in used vehicle.

But I mean, that could be a sticking point.

There's also kind of one of those where you don't want

to just let any old thing bundled into the loan.

Like, hey, we're gonna, you know, also, you know,

I don't know, like finance, like I said,

I believe there isn't, there's something

that they're looking at on the, on like,

if you're trying to buy like a big horse trailer

and attach it to the car or something like that

and finance that, there might be some,

I can't remember if there's a language

around what you can and can't do there.

You know, so, so that'd be the counter argument,

but I just, from a simplicity sake thing,

if you're going to allow service contracts,

which is, you know, again, a win for dealers,

then you kind of have to allow anything else.

It's not the metal, you know.

Right.

So, we'll see.

No pun intended.

I said interesting, all right.

John Hutter covers retail finance and insurance for us

at Automotive News.

John, really appreciate you taking the time

and thanks for your great reporting.

Thanks again.

That's Daily Drive for today.

I'm Kellan Walker.

Thanks to our own John Irwin, Larry Velquette

and Jack Wallsworth for their reporting

for today's podcast.

You can get the latest news on the IRS tax deduction,

tariffs and trade and everything happening

in the auto industry at AutoNews.com.

Come back over the weekend for our weekend drive edition

of the show with our own Larry Velquette and Greg Lason.

We'll dive more into the Supreme Court's tariff ruling

and more of the week's biggest news stories.

If I'm a supplier or if I'm an automaker

who did pay a couple hundred million dollars

in duties that are now unconstitutional,

damn right, I want my money back.

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Feb. 20, 2026 | SCOTUS strikes down Trump tariffs; understanding IRS negative equity decision

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