Early in this pandemic induced recession I did some bargain shopping for a new car even though I’ve only got 39,000 miles on the 2015… I tend to “lay in the weeds” and pounce when the prices are down. But instead of the deep discounts I expected, I found “zero percent” finance offers that defied conventional economic wisdom, especially in Ford’s case- They were borrowing billions at 9% so they could offer 0% financing! There’s a reason for that financial insanity, it’s called “mark to market”, and if Ford had dropped prices instead they’d be admitting insolvency, at least on paper. Fact is, those 0% loans for 6 and even 7 years cost Ford 25% to 30% of the vehicles retail price, and even automakers with better bond ratings were taking a 10% or more hit to offer that 0% financing, and to the car buyer it was a 10+% discount…

So for sheets and giggles I applied for those 0% loans from Ford and VW, and was turned down by both. The hilarity of it all is that my finances look a lot better than Fords, and only 3 years ago I paid off a VW loan… But maybe they were pissed because I paid it off before the first payment was due. A few days later Ford sent me the traditional “come in to our finance/intimidation room so we can shake you down for high interest financing, an extended warranty, and a $500 wax job to boot” letter. But the prize goes to VW who sent me the legalese form letter “explaining” there reasons for denying credit… Experian has awarded me a credit rating of 0. I’m gonna frame that letter!

Now if an old white lady who owns a house and a bunch of vehicles free and clear and is probably worth more dead than alive can’t get credit, how the hell will a young minority restaurant owner who needs a delivery van or a landscaper who needs a pickup? They’ll go into the aforementioned tiny finance/intimidation room and get bullied into financing at double digit rates along with the customary overpriced extended warranty and in this case thousand dollar wax job. If the buyer is undocumented they’ll probably pay list price too, under threat of getting turned in to ICE. Hard to believe, but here’s the abstract of a recent study:

“We provide evidence of discrimination in auto lending. Combining credit bureau records with borrower characteristics, we find that Black and Hispanic applicants’ loan approval rates are 1.5 percentage points lower, even controlling for creditworthiness. In aggregate, discrimination crowds out 80,000 minority loans each year. Results are stronger where racial biases are more prevalent and banking competition is lower. Minority borrowers pay 70 basis point higher interest rates, but default less ceteris paribus, consistent with racial bias rather than statistical discrimination. A major anti-discrimination enforcement policy initiated in 2013, but halted in 2018, reduced discrimination in interest rates by nearly 60%.”

And the cite: Butler, Alexander W. and Mayer, Erik J. and Weston, James Peter, Discrimination in the Auto Loan Market (April 10, 2020). Available at SSRN: https://ssrn.com/abstract=3301009 or http://dx.doi.org/10.2139/ssrn.3301009

Proof positive that minority consumers get just as badly robbed buying a car as they do buying a home. And while big corporations can buy a new van or pickup for around $20,000 without every having to set foot on a showroom floor, never mind being held captive in a finance/intimidation office, minority customers receive smaller discounts and pay higher interest for years, if they can get financed at all. An honest accounting would probably reveal that the gouging of minority buyers in the low margin business of selling cars is probably what’s keeping dealers profitable. And while minority auto workers are such a big chunk of the work force that they could shut down most every american auto factory were they to strike, only about 5% of Ford and GM dealerships are minority owned and the percentages are even worse for the other auto manufacturers.

So on this Juneteeth it’s high time the auto biz gave the minority citizens it couldn’t survive without a fair deal and reparations for past gouging!