Automobilisation of the US society, distribution of income and financing of car ownership

Publication Type:

Conference Paper


Jetin, B.


Gerpisa colloquium, Kyoto (2014)


The US automobile market has bounced back since the great recession of 2008-2009 triggered by the so-called “subprime crisis”. Sales of new and used light vehicles have almost returned to pre-recession level and US car makers have escaped bankruptcy and returned to profit. They have paid back their debt and got rid of non-profitable brands and plants and achieved what they were looking for decades: reducing the labour cost thanks to much less generous new labour contracts which were supposedly the major reason for their difficulty. With such a good performance, one could say that the great recession belongs definitely to the past and that the US automobile industry is promised to a brilliant future.
Our contribution will show that the future may seem brilliant in the short-term but not so much in the mid-term because the structural reasons that have led to the great recession are still there. In a first section, we will analyse the nature of the US recovery focusing on distribution of income, inequality and unemployment to show that this recovery is fragile and uncertain. On the short-term, pent-up demand, households’ financial consolidation, very low interest rates are the main factors that explain the rebound of the automobile market. But these factors cannot last long. Pent-up demand will wane, households’ indebtedness will reach high level again and interest rate will rise due to the planed end of quantitative easing. So in a second section, we will turn to the analysis of the structural factors which shape the US automobile market: the evolution of the driving age population, of the number of persons with a driver’s license, of the number of cars per family, and the shift of consumption pattern from goods to services. All these factors point to a scenario of stagnation of the US automobile market or in the most optimistic alternative to a slow growth of demand. But the most limiting factor of the US auto market is the mismatch between the rising trend of new car prices and income which do not grow accordingly for the majority of households to maintain its consumption pattern. This is especially the case of the so-called “US middle-class” which makes the bread and butter of the automobile market but strives to cope with all the expenses usually attached to middle class status. The temporary solution to this mismatch is brought by finance companies and banks. This is the reason why, in a third section, we will focus on the US auto financing to show how it is able to finance cars for the very poor and the very rich. We will give a special emphasis to the “deep subprime” and “subprime” customers who are doomed with a bad credit score but still can purchase used or even new cars. We will show the importance of the demand of these often poor “non-prime” customers for the new and used car market and its high profitability for the finance and banking industry. Looking into details in car financing will shed light on the complex relationships between new and used automobile markets and how low-income customers are able to buy second hand cars with a rather high social status that they could not afford
on the primary market. In conclusion, we will show that despite all its creativity, the finance and banking industry is not able to produce sustainable miracles. In a context of uncertain recovery and slowly increasing real income, increasing the volume of loans to sell more cars comes with a price: sooner or later, customers on the low-end of the income distribution spectrum are faced with the difficulty to repay their loans and financial delinquency rises. It is not yet the case because the “great recession” has purged the market for some time. But there are already early warnings which show that the process is on the way.

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