Sudden Unintended Used-Price Deceleration? The 2009-2010 Toyota Recalls

Abstract:     
Using data from the vehicle resale market, I test consumer responsiveness to large-scale product recalls that are caused by safety problems. The used-vehicle prices of Toyotas are compared to the used-vehicle prices of the other major domestic and foreign manufacturers. The results quantify the losses suffered by Toyota vehicle owners in secondary markets due to the 2009-2010 safety recalls of more than nine million Toyota Motors vehicles. The treatment effect of a recall is measured using panel data with a difference-in-differences estimation approach that allows for time-varying treatment effects and serial correlation. I find that this recall episode had negative effects in the resale market for automobiles that were quantitatively small (less than 2% of the vehicle's resale value), statistically indistinguishable from zero, and short lived (did not persist beyond December 2009). A comparison with Audi's recalls in the 1980s of vehicles with sudden unintended acceleration suggests that the extent to which a company's reputation is established is more important than whether or not a company has a reputation for producing high-quality products.

Number of Pages in PDF File: 34

Keywords: automobiles, recalls, product quality, reputation, product safety

JEL Classification: L15, L62, D22

Accepted Paper Series