The Bus Not Taken: How Easy Auto Loans Reinforced Car Dependence and Killed Transit Ridership

A used car dealership in Austin, TX. Photo Credit: Flickr user Lars Plougmann, CC BY-SA 2.0
A used car dealership in Austin, TX. Photo Credit: Flickr user Lars Plougmann, CC BY-SA 2.0

Cross-posted from the Frontier Group

In Southern California, traffic is the centerpiece of daily life. According to my friend in Los Angeles, her 14-mile commute takes up to three hours of her day; to get to her work by 9 AM, she leaves by 7:30. I live in Santa Barbara, a much smaller town with far fewer cars, but even our local NPR station has a commercial pitching their classical music hour that’s “here for you, no matter the traffic.”

Despite the deep connection between cars and the Southern California coast, the region has built more than 530 miles of new commuter rail along with 100 miles of light and heavy rail transit in the last 25 years. Even so, transit ridership has been falling in Southern California, according to a new report by researchers from the University of California at Los Angeles (UCLA).

The primary reason is straightforward enough: more people are getting cars. In 2016, America added more than 5 million vehicles to the roads, nearly 800,000 of which were in California, according to data from the Federal Highway Administration.

Why has car ownership been increasing so quickly? There are many reasons, but the UCLA study mentions one that has often escaped attention: the torrent of cheap and easy credit that has washed over car showrooms and used car lots in the years since the end of the Great Recession.  

It can be hard to remember now, but in the immediate wake of the Great Recession, the nation took several steps to get people back into showrooms again – steps that in the clarity of hindsight wound up reinforcing our dependence on cars. The 2009 Cash for Clunkers program incentivized customers to trade in their old cars in the hope that they would buy new ones. The Federal Reserve lowered interest rates to bargain-basement levels and through the magic of quantitative easing flooded the economy with money.

Eventually, Wall Street and lenders began to realize something: the auto loans they had issued prior to the recession were actually holding up reasonably well. As described in a May 2017 story in the Financial Times, “Consumers tended to default on their house first, credit card second and car third.”

And so, investors looking for returns began pouring money into auto loans. Lenders and auto dealers began to find new and exotic ways to “make the math work” for the people coming into their showrooms. Lenders increased no-down-payment promises and started to issue longer-term loans that translated into smaller monthly payments, making owning a car (or buying a more expensive car) seem feasible to more Americans. Some went even further: making loans that borrowers could never repay, or even issuing loans to consumers who claim to have never signed on the dotted line.

Increased employment, falling gas prices and rising incomes also played roles in drawing people into dealerships. But a major reason that consumers bought cars was because borrowing was easy. In a 2014 report, the Federal Reserve found that a consumer’s perception of credit market conditions had as strong an effect on the decision of when to buy a car as those very basic factors like unemployment and income.

And so borrow we did. Currently, outstanding auto debt in the U.S. sits at $1.2 trillion – an all-time record. Auto debt now accounts for 9.4 percent of all household debt, its highest share in at least 14 years.

Many have compared the recent free-for-all in the subprime auto market to the housing market right before the 2007 collapse of the housing bubble. But few have talked – until now – about the effect this influx of cheap money has had on Americans’ transportation choices.

The new UCLA study looks at a number of potential reasons transit ridership in Southern California has been on a steady decline, concluding that “vehicle access is the decisive factor in transit use” and that for the last 20 years, Southern Californians’ “ability to access and use motor vehicles … has increased.”

This has been happening, according to the study, in spite of stagnant wages for low and middle-income earners. “Even at constant incomes,” the researchers conclude, “households can acquire more vehicles if the effective price of those vehicles falls. The effective price reflects not the sticker price,” but what it will actually cost a “consumer to drive the vehicle home.” In short, “vehicles can become more affordable not just if their price declines, but also if financing that price becomes easier.” (emphasis added) And ever since 2008, “unlike home lending, which tightened considerably after the crash, automobile lending has remained relatively loose.”

One could say that those in Southern California who now have access to cars (or have better or more reliable cars) have benefited. And they have – for now, at least. But the credit-fueled car-buying frenzy of the last few years is going to come with a big hangover, one that is just starting to kick in.

Many of the loans issued in recent years have been to subprime borrowers – those with presumably the least ability to repay. Between 2010 and 2015, subprime auto loan originations have grown by 140 percent, according to the UCLA study. Moreover, lenders have increasingly been willing to offer loans valued at more than the cars are worth. In 2017, nearly a third of all cars traded in had outstanding loan balances that eclipsed the value of the car itself, averaging a decade-high $5,130 per car.

As the amount of debt has climbed, subprime lenders have increasingly employed tactics such as GPS tracking devices and ignition kill switches to collect auto loan debts – as many as 70 percent of vehicles purchased with subprime financing have one of these gizmos installed. Vehicle repossession rates have steadily climbed since 2012.

Even those subprime borrowers who are able to keep their cars will have to absorb the costs of keeping them running. Between gas, insurance and maintenance, having a car costs an average of $8,470 annually. We spend over an hour of our work day, every day, earning the money to pay those costs, and even then one in three of us couldn’t pay an unexpected car repair bill without going into debt for it.

The crisis of the Great Recession, and America’s recovery from it, could have been a moment when we considered whether there was a better way to meet people’s transportation needs – to provide more Americans with access to jobs, education, culture and fun without incurring the cost and risk of owning a personal car. The resources we squandered in the auto buying binge of the last few years are resources we easily could have invested instead in creating a more balanced transportation system with more options and stronger communities for everyone – a system that would have paid off dividends in cleaner air, better health and happier lives. Instead, we’ve enticed millions of Americans to become dependent on cars they can’t afford and that will sit as depreciating assets on their household balance sheets for years to come.

Southern California, to its credit, has begun – after generations – to take steps toward expanding the range of transportation options available to residents. Its massive financial commitment to new transit lines, voted for by residents, is testament to that.

But even LA is not moving nearly quickly enough to make up for lost time. My Angeleno friend tried to find a place to live along LA’s metro lines a few months ago; competition for housing within walking distance of a metro stop was high, and after a few months of trying to look for those apartments after her three-hour commute, she gave up.

There are a lot of days when it feels like car dependence is how things have to be because it’s how they’ve always been. But it is important to remember: we built this system ourselves, and we did it within my parents’ lifetime. It is not too late to decide we want a different world: one with fewer highways cutting through our neighborhoods; one without tailpipe exhaust and the 200+ days you should avoid going outside because the air pollution is so bad; one without 40,000 traffic deaths a year, three-hour commutes and crippling debt just to own this thing it turns out we may all be better off without.

If we invented car dependence (and we did), we can absolutely invent a way out, too. We can do better.

22 thoughts on The Bus Not Taken: How Easy Auto Loans Reinforced Car Dependence and Killed Transit Ridership

  1. This is an issue, but it ignores the more fundamental reason for falling ridership – a simple desire by people to travel by car rather than mass transit. The loans take advantage of this desire and make it reachable – however, they wouldn’t be a problem if people didn’t so strongly desire to drive in the first place.

  2. I would dig deeper. I think people choose cars when door to door travel time exceeds transit. Transit already is hampered by fixed routes and extra stops, so it’s more critical to provide increased frequency and dedicated lane to win some of the time.

  3. Yes, that is very true. The desire to drive is motivated by many factors, one of which is certainty a desire for door to door travel and less travel time.

  4. Very well written…. but it’s a complicated.

    The researchers found that car commuters in low-income neighborhoods in San Diego have about 30 times greater job accessibility than those who take public transit.
    The different ways riders leave and arrive at the stops closest to home and workplaces — what researchers term “first- and last-mile access” — can close this gap, even more effectively than more traditional and costly public transit measures like increasing transit frequency by adding buses and drivers.

    Those distances that bookend a commute are crucial, according to the study’s lead author, Marlon Boarnet, a professor of public policy and chair of the department of urban planning and spatial analysis at the USC Price School of Public Policy.

  5. I agree in part. While the former is certainly true, the cultural aspect should not be ignored. While some dismiss it, there is a link between the traditional American value of independence and individuality that causes some, at least in part, to bristle at the thought of not being in “control” of one’s movement. There is also a desire by some to be ‘set apart’ from society.

  6. Yah – it’s socialism for cars. As a society we pay people to drive – with decades of governmental and private expenditures (and massive back-end costs – pollution, global warming, noise, death, disease.) I don’t see a “simple desire” here – I see massive car subsidies that altering behavior.

  7. This situation goes back a lot further than “sub-prime loans”. Back when I started driving (during the Eisenhower administration) and up into the 1970s, one could buy a usable car for $100 or so, fill the tank with gas at 25 cents a gallon, keep it running with parts from Sears, Pep Boys and the local wrecking yard, and drive it until something major failed. Find another clunker and repeat the process. No smog checks to worry about, and an ever extending network of freeways here in Southern California. It was during the 1947-1966 period that all but eight US cities lost all of their electric streetcar systems. Buses were considered transportation of last resort for the poor souls who couldn’t afford a car or couldn’t get a driver’s license even under the very loose requirements that prevail in this country. The photo was taken in Sept. 1971 at Market & Duboce in San Francisco. I’m not sure how well this sign will show up, but it’s a name-brand gas station in a major city, and regular (back in the leaded-gas era) was going for 28.9 cents a gallon.

  8. I’m not the least bit surprised at this. Auto loan companies have regularly made commercials saying that anyone who waits for a bus is stupid if they can get an auto loan (which the company can provide). That promotes more cars on the road and more congestion.

  9. One need not look very far for recent evidence. Trump’s $200 billion infrastructure investment could largely come from a quarter-per-gallon gas tax that he himself supports.
    But it’s not going to happen for a host of political reasons.
    So guess where those funds are going to come from, in part?
    Public transit and Amtrak.'s-Proposed-Cuts-to-Public-Transit.aspx
    The movement toward autos is accelerated: road building at the expense of transit.


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  11. Easy money for cars? Blame the Fed. Easy home loans fueling speculation? Again, the Fed. The Fed has the power to print and inject into our economy, unlimited amounts of money and subsidize our government’s deficit spending. As long as the dollar remains the world’s reserve currency, nothing will change. And nothing says “reserve currency” like military dominance!

  12. and add to that no-questions-asked state and Federal road money (both new and the heavy-duty maintenance budget), while every rail project gets shredded and swamped by deceitful reporting and townhall meetings and gadgetbahn proposals and fake protesters

    Carmageddon spent a billion dollars on a 1% improvement–if road were treated like rail there’d be serious proposals for shutting down our freeways in the LA Times

  13. Also, cars are much more dependable than they were even ten or twenty years ago. You can even buy a five or six year old American car and get good dependability – my dad’s nine year old government surplus Ford Focus requires the occasional jumpstart (provided from a spare battery in the trunk) but other than that, only oil changes. My Acura before it was totaled just needed basic maintenance and replacement of wearable parts. Compare that with rail service which sometimes goes out of service, or shut down due to terrorist threats, resulting in bus bridges and stalling people during the peak period. Even if it happens three or four times a year for an average commuter (1% or less of the 500 commutes to and from work the 5 day a work person makes in a year) that’s still frustrating, whereas with the car you can always leave earlier and there are an infinite amount of alternate routes. Most parallel bus routes to rail in Los Angeles, especially in the outer areas, run every 20-30 minutes or worse.

  14. Southern California, to its credit, has begun – after generations – to take steps toward expanding the range of transportation options available to residents. Its massive financial commitment to new transit lines, voted for by residents, is testament to that.

    LA is big, but it isn’t SoCal. The study in question was on the entirety of the SCAG region, which does include LA, but also includes areas that are decidedly rural like Imperial County. So while LA and a decent portion of communities in the Basin around the city of LA are starting to move away from car-dependent planning and design, most of the rest of the SoCal region is busy with a flurry of road expansion projects and definitely does not put a lot of money into transit. Meanwhile, because the City of LA can’t convince its residents to allow denser development despite the billions poured into transit lines, people get priced out of the city to the point that driving is the only sane option for commuting or really doing anything at all.

    Even those subprime borrowers who are able to keep their cars will have to absorb the costs of keeping them running. Between gas, insurance and maintenance, having a car costs an average of $8,470 annually.

    Granted, those in a subprime car loan are probably getting preyed on, but the “average” annual car cost makes a lot of assumptions, especially in depreciation, that are not absolute. Good, running cars can be found for south of $5k and this has been possible to do for years. At that price point, depreciation is minimal, insurance can be reduced to just liability, and there is a whole class of vehicles that tend to need not much more than oil changes. (And there are even now some electrics entering this price point too, which can be essentially free to drive beyond insurance.) Even if something major does go wrong, it’s generally possible to offload the car at a price point much nearer to where it was acquired.

  15. Agreed. Which is why I’d strongly encourage LA to go bigger when it comes to designing their transit. They don’t have the density necessary for a lot of these train lines and they need a lot more bus-only lanes.
    I hope to one day live in a world where folks driving a car are asked, “Why are you driving? The public transportation is so good! Driving is such a headache!” I’d love to see driving held in the same esteem as smoking cigarettes.

  16. Poor people can own a car at an average of as little as $2000-3000 per year by buying a clunker and driving it until the wheels fall off.
    Still, what could you do if your family had an extra $200 a month?

  17. Yep, that’s exactly my point. And even then, it’s not hard to pass it along to someone else for a couple hundred or shop it around to one of the “A THOUSAND DOLLARS FOR YOUR TRADE” dealerships. Basically, it’s dirt cheap to own a car once it’s not remotely close to new and as long as it isn’t a luxury car, maintenance is usually trivial too.

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