Learning hard lessons - Time to put a brake on car debt spiral?

WE all too easily blame fate for the misfortunes that afflict us. Fate is a convenient catchall that hides behind the fatalism underpinning the Calvinists’ Westminster Confession of Faith which declares that our lives are “freely and unchangeably ordained whatsoever comes to pass”.

It suggests that everything has been decided by a higher power and that we are just bit players in a divine comedy. Grand, freeing work if you can get it.

In a world where despair seems to lurk around almost every corner that doctrine can offer attractive options. However, anyone seduced by it will struggle to live a modestly secure life because it suggests we do not need to learn from our mistakes so we might not repeat them.

We are, it seems approaching a point where we will see how well we have learned the lessons of our recent history. We will, soon enough, have to decide between blaming fate or tipping our hat to that eternal leveler — personal responsibility.

There is growing evidence that we may be waltzing towards another 2008 implosion when out-of-control lending meant banks needed massive, generation-grinding taxpayer intervention.

The international warnings about the soaring level of personal debt, especially car loans, have been persistent for some time. The figures are so startling that they must provoke a sense of déjà vu in anyone with eyes to see.

Europe’s largest car companies have more than doubled the lending on their balance sheets in less than a decade.

Increased use of manufacturer-driven car financing has driven their exposure to consumer borrowing to record highs. Volkswagen, BMW, Daimler, and Renault had more than a €400bn exposure to loans and leases at the end of June, according to a Financial Times analysis. To put those figures in a domestic context Bank of Ireland, at the end of last year, had a net asset value of around €8.1bn.

As ever, things are bigger in America. Last year, Americans bought more new cars than ever. Car sales represent around a fifth of all US retail spending, so the record year is seen as an expression of recovering consumer confidence.

That is reflected in the car-debt graph. America ended last year just shy of $1.2tn in outstanding car loan debt, a rise of 9% from the previous year and 13% above the pre-crisis peak in 2005, in inflation-adjusted terms.

The number of cars and trucks on the road rose by just 1.5% last year, and 9% since 2005. Total household debt levels are barely a sliver below their 2008 peak, with some of the fastest growth down to car loans.

Those trends are apparent here too — though we cannot be exact about the amount of money tied up in personal contract plan deals as they do not fall under the Central Bank’s remit.

A central credit register is being prepared and that important data will be revealed that way.

In the meantime we are sailing blind, relying on fate.

Car manufacturers’ self-centred loyalties were exposed by the emissions scandal so there is an urgency about this issue, especially as it is one more instance of how very difficult it has become for small national governments to manage multi-national corporations’ impact on our economy and society.