Can I Borrow [for] Your Car? Income, Race, and Automobile Debt in California

Abstract

The COVID-19 crisis elevated the importance of private vehicles. The pandemic drove riders off public transit and spawned additional car-based activities such as drive-through testing and vaccinations and curbside pick-ups. Yet millions of low-income and non-white households do not own vehicles. This chapter draws on a unique credit panel dataset to examine automobile debt and delinquency in California. In particular, we examine whether automobile debt patterns during the pandemic differed from those during and coming out of the Great Recession (December 2007–June 2009). We also analyze the response to the COVID-19 recession across neighborhoods by income and race. Similar to the situation during the Great Recession, we find that the number of automobile loans per borrower declined. While the automobile debt burden (the ratio between total automobile debt and aggregate income) also declined, it fell far less during the pandemic than during the Great Recession. Moreover, automobile loan delinquencies spiked during the Great Recession but instead continued to drop during the pandemic. Finally, the COVID-19 crisis affected consumers differently by both race and income. Automobile debt burden rose in low-income, Latino/a, and Black neighborhoods, a pattern that preceded but continued unabated during the pandemic. The findings suggest that COVID-19 relief may have helped some families manage their automobile-related expenditures. However, other factors, such as increasing automobile prices, likely contributed to growing debt burdens, a potential source of financial distress.