How people access and pay for cars will need to change in light of continued financial instability among households. Part III assumes that in the coming years, the auto market will have to adjust more drastically to the pandemic’s economic fallout. For auto loans, this warns of the bubble’s eventual burst. 25 The trifecta of a small cash infusion, moratoria on some debt collection, and auto lenders’ incentives likely will merely hold off a crash in auto sales and lending. Nonetheless, the crisis exposed the cracks in the United States’ economy. 24 Through these combined measures, auto loan defaults did not increase immediately. 23 Auto dealers and lenders likewise struggled during the pandemic, and they focused on enticing people to become or remain customers, rather than repossessing cars. 22 A handful of states also legislated additional debt relief for households. 21Īs detailed in Part II of this Essay, the CARES Act provided households with money and enforced pauses of other debt payments such that people were seemingly able to stay current on car loan payments through the fall of 2020. 19 Within weeks of the World Health Organization declaring a pandemic, 20 Congress stepped in to stabilize businesses’ and households’ financial situations with the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. 18 Uber and Lyft drivers, some of whom had taken out loans to purchase vehicles, saw their ridership and income plummet. Unemployment rates skyrocketed past their Great Recession highs as businesses closed their doors. The economic conditions that continued to fuel the auto loan bubble while preventing its burst ended abruptly in March 2020 when the states across the country enacted various stay-at-home orders to try to control COVID-19’s spread. 16 Commentators also pointed out that the market for securities backed by auto loans, particularly sub-prime auto loans, was “going gangbusters” and bore a striking resemblance to the home mortgage market before the Great Recession, albeit of a smaller scale. 15 Yet, even then, multiple reports recognized that the rise in auto debt in the United States showed an unsustainable dependence on automobiles financed by households. 14 The United States’ strong pre-pandemic economy combined with a low unemployment rate likely were the leading reasons that the bubble did not burst at that time. Prior to the pandemic, the build-up of auto loan debt outstanding and the growth in delinquencies and defaults led experts to classify the auto loan market as a bubble and to predict that the bubble would burst soon. 12 Before the COVID-19 pandemic, people with subprime auto loans were defaulting within the first few months of borrowing at rates rivaling those during the 2008 financial crisis. 11 Auto loan deficiencies hit an all-time high at the end of 2019, with seven million Americans 90 or more days behind on their auto loan payments. More auto debt, combined with more expensive loans, has led to increased delinquencies and defaults in the past decade. the third-largest consumer credit market in the United States,” behind home loans and student loans. 8 Overall, as of the beginning of 2020, auto loans made up about nine percent of household debt, 9 making “he auto loan market. 7 Part of the growth stemmed from a flourishing subprime auto loan market, which now accounts for nearly one-quarter of the $1.33 trillion in auto loan debt outstanding. 6 During the past decade, auto debt has skyrocketed, increasing nearly 40 percent overall, with the average auto loan for a new car rising 11 percent. 5 Auto lenders have seized on this need for financing. 4īecause few households have enough money saved to purchase even very used cars, let alone gently used and new cars, more than two-thirds of people fund their car ownership with hefty auto loans. 3 This reality has led roughly 85 percent of households in the United States to own at least one car. 2 People’s reliance on cars traces to accumulated policy decisions by the federal, state, and local governments that have prioritized automobiles as the mode of transportation in the United States. For instance, households without cars have lower incomes, while having a car increases people’s probability of employment. 1 This makes the perception that people can choose to live “car free” largely inaccurate. In most places in the United States, having an automobile is critical for everyday life, such as for getting to work and school, accessing healthcare and daycare, and shopping for essentials.
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