For many Americans, having a car means keeping a job in transit-barren suburbs and cities. Losing transportation could mean losing everything.
You could think of it as foreclosure for cars. Except that unlike foreclosure on a house, this can happen in an instant, triggered by a debt collector in a remote location with just the push of a button.
The New York Times told the story in an important article by Michael Corkery and Jessica Silver-Greenberg published last week. Car owners like Mary Bolender, who lives in Las Vegas, are discovering that their cars’ ignitions have been disabled when they've fallen behind on their car loans.
In Bolender’s case, she was about to drive her asthmatic 10-year-old daughter to the emergency room because she had a high fever. Bolender’s car wouldn’t start: Her Arizona-based lender had disabled it because she was three days late on a $389 payment. “I felt absolutely helpless,” she told the Times.
According to the Times article, cases such as Bolender’s are becoming increasingly frequent, for a couple of reasons. First, the technology now exists to shut down ignitions remotely (one of the debt-collection guys brags about doing it “while I was shopping at Walmart”). Second, investors see relatively easy money in the automobile subprime loan market. From the Times:
Auto loans to borrowers considered subprime, those with credit scores at or below 640, have spiked in the last five years. The jump has been driven in large part by the demand among investors for securities backed by the loans, which offer high returns at a time of low interest rates. Roughly 25 percent of all new auto loans made last year were subprime, and the volume of subprime auto loans reached more than $145 billion in the first three months of this year.
The people getting such loans are required to fit their cars with the gadgets that enable lenders to disable the vehicle at any time for nonpayment.
The story, which is well worth reading in full, makes a perfect and horrible kind of sense. In most of the United States, where so many people are barely clinging to employment as it is, access to a reliable personal motor vehicle is practically a prerequisite for keeping a job. People in many parts of the country need cars, and need them desperately, because there is simply no alternative way to get around due sprawling development and underfunding of transit.
In relatively prosperous areas, the poorer people are, the more likely they are going to be pushed to the edges of cities—where housing costs are lower but transportation options are fewer. So for people such as Mary Bolender, taking out a loan on any terms is just the price of admission to the local economy and education system.
No wonder Wall Street investors are excited about subprime auto loans. In today's low-interest world, rates topping 23 percent have proven irresistible to those who are willing to take the risk.
In an earlier Times investigation, Corkery and Silver-Greenberg looked at just how dicey this market can be for the lenders: Subprime auto loans are, unsurprisingly, subject to many of the same questionable practices and fuzzy paperwork as subprime mortgages were, with income and employment status willfully obscured.
Borrowers, in their turn, are taking out loans they are almost certainly unable to repay, many of them on defective, overpriced vehicles. Sometimes that can lead to bankruptcy. Frequently, it leads to people being stranded without access to work, health care, or basic goods and services if their car gets repossessed.
The ugly economics of subprime auto loans are also a symptom of the nation’s car dependency, which has now become, outside of a few high-priced cities, virtually complete. Take Texas as one example: A recent poll conducted by the Texas A&M Transportation Institute indicated that only 6 percent of Texans use public transit as their main method of getting around, and only 10 percent don’t own a car.
The same poll found that only one third of respondents had made a “nonrecreational” walking trip in the last 30 days. That’s not really surprising, since much of the state (including urban areas and inner-ring suburbs) is built in such a way that walking to the store, to school, or to work is impractically time-consuming, seriously unpleasant, or downright dangerous.
The people who did rely on means other than personal motor vehicles were more likely to earn under $25,000 and/or to be members of minority groups. Lower-income households also saw a higher proportion of their income going to transportation.
The rise of the subprime auto market, with its echoes of the subprime housing market, is a nasty reminder that for many Americans, cars are nearly as indispensable as shelter. We have built our communities to make that true.
For some people—those who are comfortable with disabling a family’s car in its hour of need—that means big money. But it sure isn’t pretty.