Thread by @TomHainesDoran

The #WarOnCars is underpinned by a false polarisation between car drivers and the car industry on one side, and the rest of us on the other.

In my new paper, I show how the car industry has deliberately pushed motorists into ever greater debt, in order to save itself.

Thread

In recent years the car industry has innovated new forms of car consumption finance to entice consumers to acquire new cars. In many developed markets, this has taken the form of the Personal Contract Purchase (PCP).

PCPs are associated with higher value purchases and more frequent replacement of vehicles by consumers. Commentators generally explain their popularity by referring to changing consumer demand, which wants new things more quickly - eg mobile phone contracts.

But thinking about why consumption happens the way it does without linking consumption to production misses the importance of the economic needs of *producers*.

As @giulio_mattioli @JKSteinberger and @bikeademic brilliantly demonstrated - the popularity of cars is not simply driven by a standalone ‘consumer demand’, but is shaped by the economic realities of production, which helps create a certain political culture of consumption.

@giulio_mattioli @JKSteinberger @bikeademic Most importantly, cars are made at a massive scale in massive plants. It is a simple truth of car economics that to remain economically sustainable, cars need to be continually pumped out at a vast scale. Any reduction of demand risks writing-off massive capital investment.

@giulio_mattioli @JKSteinberger @bikeademic But we have reached ‘market saturation’ in the mature economies of the Global North. Despite increasing demand for cars in emerging economies, most people who might want a car in rich societies already have one - and that's a problem for manufacturers.

@giulio_mattioli @JKSteinberger @bikeademic In Britain, for example, registrations of new vehicles began to tail off in the early 2000s.

@giulio_mattioli @JKSteinberger @bikeademic PCPs prop up the car industry by extending greater quantities of credit to consumers than was possible under the previous Higher Purchase (HP) model.

Whereas under HP motorist retained ownership at the end of the finance deal, with PCPs, consumers are faced with an unaffordable ‘lump sum’ if they want to keep the car. Of course, most swap for a new model.

The ‘lump sum’ value being excluded from the finance deal means that manufacturers are able to lend greater amounts of money to consumers to finance the acquisition of higher value vehicles.

I found that the rise of PCPs in Britain has been associated with greater borrowing levels and higher value acquisitions, in real terms.

PCPs are deeply imbricated into financial markets, where financial investors bid for PCP ‘receivables’ - bundles of consumer finance repayments.

These investors are highly sensitive to the risk of consumer default.

And here’s the rub - real wages have flat-lined in the same period PCPs have come to the fore.

So you need to be very sure that consumers will prioritise car finance repayments above all else.

In part, this is achieved by a harsh regime of threatened vehicle repossession, which is reported in detail to financial markets.

But such punitive measures are only effective in car dependent society, where losing access to your car could mean losing access to other important things like work, education, or care.

Car dependency is therefore ‘leveraged’ to increase consumers’ access to credit, to feed the insatiable demand of producers for high spending consumers.

The rise of PCPs creates considerably increased financial risks for different groups in society, in complex and inter-related ways...

By maintaining new car consumption, they quickly add high quality vehicles to the 2nd hand market, depressing prices there. But lower 2nd hand car values undermine PCPs themselves - their financial integrity rests on the vehcile in question realising its value at contract end.

That dynamic cannot continue in perpetuity.

Neither can consumers taking on ever increasing amounts of debt.

Massive government bailouts, anyone?

Perhaps most importantly, PCPs threaten efforts to save our planet from total catastrophe.

They are underpinned by, but also reinforce car dependency, trapping consumers in debt spirals while dazzling them with over-engineered (and increasingly large) vehicles, which are, of course, not used most of the time, and which steal public space and threaten other road users.

Media commentary on new motor finance is wrong. It is not a response to changing consumer demand, but an opportunistic move based on the inflexibility of car industry itself, which has largely shunned transformational reform to make a positive contribution to saving the planet.

Broader awareness of manufacturers' 'exploitation' of motorists' dependency on their cars for private gain could be an important piece of ammunition to break down the false cultural divides manufactured by the car industry and their servants in government.

Read it free here tandfonline.com/doi/full/10.10…

Many thanks to
@liliproj and
@Y_PERN_ for funding this research, as well as to all those who commented on the draft.