Beyond Our Means

I read with great interest a story that appeared on the Reuters home page this past week, where the authors noted that auto loan delinquencies had reached their highest level in eight years during the last quarter of 2016. Given the number of crises, financial and otherwise, that appear to be rampaging around our nation these days the threat of people not making their car payments on time may seem relatively trivial, but it has a number of disturbing implications, beyond the fact that Americans appear to be spending more than they can afford on motor vehicles yet again…

Regular readers of this blog (assuming I have readers) may recall a story I brought you at the beginning of the 2008 financial crisis about people falling prey to predatory loans, not just on their mortgages or their credit cards, but also on their car loans. It didn’t draw that much attention at the time, and maybe it shouldn’t have – this was a period when people with mortgages they couldn’t afford were choosing to abandon their properties and taking the hit to their credit when the banks foreclosed. But the impact of borrowers using the same tactic to purchase new cars – taking out new loans to purchase new vehicles and leaving the old ones to be repossessed – did not help the ensuing consumer credit situation…

I can’t speculate on the political or legal ramifications of the crisis, but it is possible that too many people failed to grasp the size of the problem. According to the Reuters story, auto debt in America went up by around $93 billion over 2016, which brings the total people in this country owe on their vehicles to just over $1.16 trillion. Yes, I said trillion; we have just caught up to and passed the amount owed on this class of loan at the time the Great Recession started. Of that amount, Reuters is reporting that around $23.27 billion are 30 days delinquent, and another $8.24 billion are 90 days delinquent or more. For comparison, the ruinous student loan debt in this country is at around $1.31 trillion, and total debt is around 12.6 trillion…

Now, you might quite reasonably ask why I am wasting your time with this story, particularly if you are not currently behind on any of your loan payments. Why should you care if the kind of people who spend $80,000 on a car when they make $10 an hour are at it again? I could point out that this type of borrowing behavior is a long-standing predictor of trouble for the auto industry, remind you about the havoc that resulted the last time the Big Three automakers were facing bankruptcy, or even point out that if one or more of these companies does go underwater again, it’s your tax dollars that will be used to bail them out. But what really concerns me about this is the part we’re not seeing – the parts that don’t hit the radar at Ford Credit or its counterparts…

The impact of predatory lending at a local level – the “Buy Here – Pay Here” operations are only one of the more egregious examples – may not have the same impact as GM going into bankruptcy, but the effects on a whole range of people who can’t ask the Federal government to bail them out were hideous. And while our current leadership – financial as well as political – does not like to admit it, if consumer spending drops off because none of our consumers have money to spend on anything except loan payments, none of us are going to like the results…