Richard Wolff on Auto Loans in Increasing Default


Last update I’ll have time for today has
to do with auto loans in the United States. Auto loans are again
in increasing default. What do I mean? People who borrow money to buy an
automobile discover two, four, six, eight months in that they can’t come up with
the monthly bill to pay for the car. And so the car is repossessed, taken away
from them. What’s interesting this time are two things I want to bring to your
attention. First, the biggest sufferers, the biggest defaults, the biggest
repossessions of cars are cars that are ten years old. Eight, nine, and ten years
old. So the first thing I want everyone to understand (because it was news to me)
is that more than ever before used cars, even old cheap used cars, cannot be
afforded by Americans unless they borrow the money to buy them. Number two: nine
and ten years ago was the worst of the crash of 2008. So bad was that crash that
American car companies cut back production of new cars drastically, which
is why nine and ten-year-old used cars are now in (you guessed it) very short
supply. So the dealers in them jack up the prices forcing the buyers who want
them to go into debt which they can’t carry. So they lose the car which is
their only way, in our society that has such poor public transportation, for them
to hold on to their jobs. Ten years after the crash of 2008 we’re still producing
personal tragedies based on the instability of the capitalist economic
system.

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22 thoughts on “Richard Wolff on Auto Loans in Increasing Default

  1. Our local Credit Union went to repossess a truck in default and found the engine was gone, sold off. We all pay for this!

  2. I still owe over $4k on a 2003 pickup truck I bought nearly three years ago; $2k for the original loan to buy it and just under $2k for necessary suspension work. I'm one of the lucky ones who can afford my payments. Capitalism is breaking, yet so many remain resistant to that fact

  3. If a car is sold, at a price of $10,000, with 10% interest per year for a term of 5 years, assuming same portion payments monthly, that is about $2,700 in interest alone.
    Say if a purchaser buys the car and default on the loan within 1 year, and this process repeats 5 times over the 5 years of original term, then you have 4 individuals with approximately $8800 in debt after they defaulted and one fresh individual owing $12,700.00 for the duration of his loan. Suddenly, a second hand car which market values at $10,000 has created financial value of more than $60,000, with approximately $10,000 paid back to the car dealer and $50,000 outstanding in collectible debt. The debt is also tradable to debt collectors or can be bundled into investment instruments and sold to investors/funds.

    The reality is that the materials, sweat and effort going into making a car, which is measured by volume of steel, man hours and technology, is multiplied several times due to the way the economy is setup. By simply setting up loans/swaps/investments, you now have generated value way beyond what it is worth, and from it you also created legal means to collect debts, push consumers to bankruptcy and the establish the gambler like mentality of rating on risk.

  4. Dr. Wolff, you're my favorite economist! I'm voting for Bernie Sanders! As for buying very old rusty cars with high mileage for under $1500, Toyota Corollas are generally the most reliable.

  5. What you have to realize is this.. 40% of Americans are in arrears with car payments today.. this is why a lot of people are in debt there's a bunch of good used cars out there you go buy cash but they want brand new cars like following the Joneses..

  6. The next problem with car loans is years ago when you bought a car you had your payments with 3-4 years you paid it off.. now they want to entrap you again especially the poor people who want new cars.. so what to do with the poor people who want you cuz they stretch the car payments now to 780 years so you're getting a car that cost $25,000 and your payment is 3 $400 a month with high interest for 8 years instead of 4 years and this is why I most Americans are in debt and in arrears with car payments..

  7. OMG! This is catastrophy. Living in harsh conditions make humans behave harshly to fellow human beings. Non availability of public transport systems shall aggravate this situation.

  8. Buying a good quality new car is almost always best when compared to buying even a good quality old one.

    The fact is that old cars break down more often and the older the vehicle the more expensive the break down.

    So while it might seem like you are saving money by going with an older car, in the long run, you actually end up paying the exact same amount as a new car would have cost you or in some cases even more do the breakdowns in the old car forcing you to miss work.

  9. More proof that Wall Street and the GDP is no indication of a growing economy for average American. Debt capitalism is unsustainable. There is nothing freeing about the "Free Market" anymore. Call it what you like, Corporate Fascism or Billionaire Authoritarianism. It's all designed to enslave and keep you in the hole with no chance of ever crawling out.

  10. I dont know if this is worse than the home loan crisis of 2008.
    I can understand a house costs a lot of money and thus mortgage higher, but car loans barely 1/10 being a problem?
    Either Americans are getting poorer and poorer could not afford cheap used cars or are borrowing BAD BAD car loan policies!

  11. Professor Wolff is right to highlight the serious delinquencies occurring on automobile loans. Yet, these problems are just the tip of the iceberg. This fall I taught a course on "The State of the U.S. Economy and Society," that included the recent statistics on both private and public debt. This particular lecture I named "Death by Debt Strangulation." Mortgage debt is the largest and, potentially, the most serious risk to households if another recessionary contraction occurs. Of course, there is also credit cards, installment loans, and student loans (many of which are owed by senior citizens already faced with medical related debts). This entire course is Powerpoint based and video-recorded for Youtube. If you want to details on debt and other aspects of the U.S. economy search on "Edward Dodson" and open the playlist with the above course title.

  12. Not only your argument is invalid and extremely stupid, I mean if you consider this an argument against capitalism you are mentally ill. Also, you disgust me with the way you talk, and the last one: Why are your eyes tired and dark around?
    I'm asking this because all the communists also here in my country have the same eyes and face. Please be kind to explain.

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