Car Crash: Will The Next Financial Collapse Arrive On Wheels?

There’s been a slow-burn story bubbling away in the financial news for some time now. It concerns the fact that most cars are sold today on credit. So-called Personal Contract Purchases now account for around 4 in 5 car purchases compared to 1 in 5 in 2006. The parallels with the housing market before the financial crash of 2007 are striking. It’s even referred to as the subprime car-loan market or, in some cases, the deep subprime car-loan market. Today, debt related to cars was highlighted in the Guardian’s wider reporting on the UK’s massive personal debt crisis. It is the fastest expanding part of our ballooning private debt.

Cars are essential for many people as they go about their lives but cars are also, and always have been, a classic status symbol – a fact that is relentlessly played upon by manufacturers and advertisers. This adds another intense element to the demand for cars as many people will seek prestige or luxury models that would normally be out of their price range if it wasn’t for the credit option. In the very unequal US and UK, it seems the status fix of choice has now moved from increasingly unaffordable housing, where credit has been constricted, to more affordable cars where credit has ballooned.

All the forces that were at play in and before 2007 are in play once again ; profit-hungry companies desperate to make sales and a ready market of people on low to middle income seeking the best products available, even if it means going into serious debt. The same dubious financial trends are also present including a saturated market that’s recently showing signs of decline as well as the packaging up of risky debts with less risky debts that are then sold in bundles to institutional investors. It appears the financial great and good have learned nothing since 2007.

The TUC recently published an excellent (and worrying) blog which summarises the key developments in this market and the risks it poses. The blog ends with this plea: “There must be a different way to a stronger economy, one that permits higher demand, higher wages and higher production to go hand in hand in a sustainable way.”  We agree and we think there is a different way. We need a much more equal economy, one that distributes (and redistributes) wealth and income fairly such that people’s incomes are sufficient to buy the things they want without recourse to forms of debt that can end up crushing the majority, enriching the few and destabilising the world economy. 

Bill Kerry, Supporters & Local Groups Manager