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Car trouble: How symbol of freedom became a ball and chain

Few things are more strongly associated with a particularly American style of freedom than the privately owned automobile. Whether it’s Super Bowl ads or public policies that disproportionately favor motorists over cyclists and transit riders, the message has been consistent for decades: Get out and drive.

But the freedom of the open road comes with a growing cost: A report last week by the Federal Reserve Bank of New York notes that auto loan delinquencies of more than 90 days have been trending upward since 2012, ensnaring a record 7 million Americans. Since the global financial crisis 10 years ago, the amount that Americans owe on their cars has grown by a whopping 75%. Even as some Americans are driving less or ditching cars altogether, for many commuters an auto is a costly but burdensome necessity.

That’s the case for single mother Jennifer Ramsey in West Virginia’s Tucker County. A car isn’t a status symbol but a life-support system, and Ms. Ramsey just has gotten hers back after a divorce. “Around here,” she says, “no car means no job. No food.”

For Jennifer Ramsey and her fellow residents of Tucker County in West Virginia, a car isn’t a status symbol, but a life-support system.

“Around here,” she says, “no car means no job. No food.”

Ms. Ramsey says that with no public transit in the county, if you don’t have a functioning car, “you have to get really creative and you have to be really humble.”

“It’s common to see people going to the grocery store on their riding mower or motorized scooters,” she says. “It’s a completely practical solution to getting around where you can’t own a vehicle due to finances or disability.”

Ms. Ramsey, a single mother, understands full well the perils of being stuck without a car in a place that depends on them. Her silver 2012 Mazda 5 has recently emerged from two years of legal limbo following her divorce. In the meantime, she lost her carpenters’ union job working on cooling towers, unable to make the 90-minute commute. “It’s actually put on most job applications around here,” she says. “‘Do you own a reliable vehicle?’”

As Ms. Ramsey’s experience indicates, America’s much-vaunted freedom to take to the open road in a privately owned automobile comes attached to a hefty financial obligation, one that many Americans are finding increasingly difficult to meet.

A recent report on consumer debt by the Federal Reserve Bank of New York notes that auto loan delinquencies of more than 90 days have been trending upward since 2012, ensnaring a record 7 million Americans. The report also finds a surge in overall car debt, up 75% since the Great Recession. Collectively Americans owe a record $1.28 trillion on their cars.

The rapid growth of auto loan debt highlights a growing contradiction in the American economy: Car ownership remains a necessity in most places, but for many workers auto prices are rising faster than wages. Adding to the toll is the rise of “subprime” car loans, which come with high interest rates and often from the outset expose the borrowers to undue risk of default.

For many Americans, car ownership is both burdensome and compulsory. Some analysts argue that the solution is not to increase car ownership – there are an astonishing 272 million privately owned automobiles at last count, one for every 1.2 Americans. The solution, they say, is to reduce the number of “transit deserts,” where alternatives are lacking, while cracking down on predatory lending.

“How we became a nation that is so car-centric is really a result of decades of policy that has pushed us to this point,” says R.J. Cross, an analyst at the Frontier Group, a public policy think tank. “Our cities are designed such that everyone feels like they have to own a car.”

Reinforced by everything from zoning codes that push workers into suburbs to public spending that favors motorways over public transit, walkways, and bike paths, this mentality is pushing Americans deeper into debt, argues Ms. Cross. She is the primary author of Driving into Debt, a report published in February that argues for greater legal protection against predatory lending and for public transit improvements.

“It’s in these auto manufacturers’ interest to get as many people into cars as possible,” she says. “So the fact that they’re able to have these huge financing arms to help accomplish that and the fact historically they tend to capture the market that has lower credit scores, is deeply troubling.”

Cars more of a burden, but also a necessity?

Auto loans are almost as old as the mass-produced automobile itself. In 1919, just 11 years after the first Model T rolled off the line, Ford’s competitor founded the General Motors Acceptance Corporation, which offered customers a way to buy a car on credit. GMAC helped propel GM to the forefront of the fledgling U.S. auto industry, and by 1930, 3 of every 4 cars were purchased with a loan.

Today, the freedom of driving a car off the lot with little or no money down often accompanies a sense of feeling trapped. Almost half of Americans say that their auto debt has robbed them of their peace of mind, and nearly a third say that showing up at work naked would be less stressful than five years of car payments.

But for many Americans, that’s because making those payments is necessary to get to work, naked or not, in the first place.

“We have transit deserts in every major city,” says Junfeng Jiao, a professor of urban planning at The University of Texas at Austin School of Architecture. “It’s something we have to face.”

According to Bureau of Transportation statistics, transportation accounts for the fourth highest household expenditure for Americans, after health care, housing, and food. And the average new-car price in the U.S. now tops $36,000, an increase of 8% in the past 10 years, adjusted for inflation. By comparison, household incomes rose just 3% in the decade that ended in 2017, the latest for which the Census Bureau offers data.

And hanging on to those cars has become a priority. In the past, debtors facing financial difficulty would traditionally pay their mortgage first, then their car payment, and finally their credit card bill. But in a 2012 survey, TransUnion found that more struggling borrowers had started to pay for the car first.

Many Americans, of course, continue to love the freedom of mobility that a car provides, and aren’t having trouble making payments. Yet the rise in debt and delinquency signals a widespread problem that, ironically, can be traced partly to legislation designed to avoid another subprime-lending or financial crisis. An exemption in the 2010 Dodd-Frank Act prohibits the Consumer Financial Protection Bureau from regulating car dealerships.

After the Great Recession, loans to subprime customers doubled by 2014, while loans to prime customers increased by half.

Some populations are more vulnerable than others to the challenges of risky loans and living in transit deserts.

“African American households were particularly hard hit by the [global financial crisis], and face continuing discrimination in the auto lending market,” Melissa Jacoby, a bankruptcy law expert at the University of North Carolina, says in an email interview.

And she sees a sizable risk that bad loans could damage the wider economy. That’s because the loans have features that are likely to lead to default, and because of the way a default wave can ripple through markets for loan-backed securities.

“Many American households have not recovered from the impact of that [2008] crisis, and yet market participants seem to be engaging in the same risky behavior that precipitated it,” Professor Jacoby says.

The road ahead

A cultural shift, however, might help ease the tensions over car ownership. Over the past decade, the number of miles driven each year by the average American, a trend that had been on the rise for 60 years, has been steadily falling. This trend is spearheaded by those between the ages of 16 and 34, a population known for being far less car-centric than its forebears.

“It’s possible that we’re just not as interested in inheriting the same kind of American dream that involves car ownership as previous generations are,” says Ms. Cross, who sold her car after moving from Kansas to Boston. 

As a result, per capita auto debt has been growing fastest among Americans age 70 and up, and slowest among adults under 30, although young people are still more likely to be delinquent, according to the New York Fed report.

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Like Ms. Cross, Dylan Casler, a recent Vanderbilt University graduate who moved to Boston last year, found that the costs of car ownership in Boston outweighed the benefits. “Repairs would get expensive. Insurance was expensive. I found my windshield cracking pretty much annually,” he says of his blue 2004 Saab 9-3, which he is in the process of selling. “It’s nice to save all the money that I was pouring into it.”

Editor's note: A sentence in this article has been corrected to indicate that the U.S. has one car for every 1.2 people.

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