Mobility on the Installment Plan: A New Blog Series on Cars and Credit

Lack of access to credit helped crash the auto market during the recession. Free and easy access to cheap credit is helping to supercharge it now.

Posts in this series:

Auto Boom or Auto Bubble?

It Has Never Been Cheaper to Climb into an Expensive Car

Is Individual Car Ownership Dying? And Is Leasing Helping to Kill it?

A few weeks ago, I had the privilege of attending the Shared-Use Mobility Center’s Move Together summit in Chicago. The meeting was abuzz with entrepreneurs, policy-makers, nonprofit types and others trying to make sense of the dizzying round of innovation now sweeping transportation: carsharing, Uber, microtransit, bikesharing and – in the “objects in this mirror may be closer than they appear” category – autonomous vehicles.

The promise of these innovations, as we wrote in our 2013 report, A New Way to Go, is that, taken together, they have the potential to pose the first serious challenge in generations to the dominance of the privately owned automobile. The “mobility as a service” model – built around an array of shared, on-demand transportation services – has the potential to be less costly, more efficient, more environmentally friendly and more flexible than our current mobility model, in which nearly everyone must own a private car. Even major automakers have been planning for how their business models must adapt to this emerging new world.

In the meantime, however, here in 2015, private auto ownership appears to be alive and well. Over the last year or so, Americans have been buying cars at a rate unseen in more than a decade. The number of light-duty vehicles in use has been inching upward to new record levels.

(data: Federal Reserve Bank of St. Louis)

Why? Much of the discussion around the increase in auto sales, as well as the simultaneous increase in vehicle travel, has cited a newly robust economy, increasing employment and plummeting gas prices. All of those factors have likely contributed to the resurgence in car sales. But one major reason for the surge has received less attention: the availability of cheap and easy credit.

A growing body of research – much of it published since the financial crisis – shows that automobile sales are closely linked to factors such as the availability of loans and anticipated interest rates. A 2014 Federal Reserve Board working paper found that “credit conditions are a significant influence on auto sales, as large as factors such as unemployment and income.” (emphasis ours) Similarly, another 2014 paper [PDF] tied the crash in auto sales to “a credit supply shock driven by the illiquidity of the most important providers of consumer finance in the auto loan market: the captive leasing arms of auto manufacturing companies.” (emphasis in original)

Lack of access to credit helped crash the auto market during the recession. Free and easy access to cheap credit – widespread 0% APR deals, the approval in recent months of 29 out of every 30 applications for a car loan – is helping to supercharge it now.

Credit conditions are a significant influence on auto sales, as large as factors such as unemployment and income.

-Federal Reserve Board working paper

We have clearly not yet arrived at a post-auto ownership future. But neither is this your father’s automobile market. Americans are more likely today to finance their cars – new and used – than ever before, and they are paying them off over a longer period of time. An increasing number of car shoppers – especially young people – aren’t buying cars at all, but rather are leasing them.

What are the implications of these changes in how we buy, pay for and use our cars? Is private vehicle ownership undergoing a resurgence that defies the predictions of Uber-driven doom? Or are there changes in the auto market that can give us hints about what the future of “mobility as a service” might look like?

Over the coming weeks, Northeastern University economics and international relations co-op student Vincent Armentano and I will review what has happened in the automobile credit market since the financial crisis and explore the implications. Among the questions we will ask are the following:

  • Is the recent boom in auto sales – a boom built largely on the availability of cheap and easy credit – sustainable?
  • What might the shift from outright ownership to leasing and long-term financing of cars say about the potential shift away from private vehicle ownership as the dominant mobility model in the United States?
  • Is there any connection between the boom in auto sales and the “Driving Boomlet” that has taken place in the United States over the last year?

The answers to some of these questions are ambiguous. But, whether you cheer the surge in auto sales as expanding access to mobility or lament its contribution to congestion, climate change and the debt burden on consumers, the issues at play are worthy of exploration. With economic storm clouds on the horizon and the Fed continuing to consider hiking interest rates for the first time in nearly a decade, there is no better time to get a handle on what the implications of these changes might be for our transportation future.


Tony Dutzik

Associate Director and Senior Policy Analyst, Frontier Group

Tony Dutzik is associate director and senior policy analyst with Frontier Group. His research and ideas on climate, energy and transportation policy have helped shape public policy debates across the U.S., and have earned coverage in media outlets from the New York Times to National Public Radio. A former journalist, Tony lives and works in Boston.