Auto Sales and Credit Supply

42 Pages Posted: 8 Nov 2014

See all articles by Kathleen Johnson

Kathleen Johnson

Board of Governors of the Federal Reserve System

Karen M. Pence

Board of Governors of the Federal Reserve System

Daniel J. Vine

Board of Governors of the Federal Reserve System

Date Written: September 23, 2014

Abstract

Vehicle purchases fell by more than 20 percent during the 2007-09 recession, and auto loan originations fell by a third. We show that vehicle purchases typically account for an outsized share of the contraction in economic activity during a recession, in part because a concurrent tightening in auto lending conditions makes car purchases less affordable for many households. We explore the link between lending conditions and vehicle purchases with a novel gauge of credit supply conditions -- household perceptions of vehicle financing conditions as measured on the Reuters/University of Michigan Survey of Consumers. In both a vector auto-regression estimated on aggregate data and a logit regression estimated on household-level data, this measure indicates that credit conditions are a significant influence on auto sales, as large as factors such as unemployment and income. Estimates from the household-level model show that the new car purchases of households that are more likely to depend on credit are particularly sensitive to assessments of financing conditions, and that households are a bit more likely to purchase vehicles when they expect interest rates to rise in the next year. The results contribute to the literature validating the usefulness of survey measures of household perceptions for forecasting macroeconomic activity.

Keywords: Auto loans, auto sales, credit constraints, Michigan Survey of Consumers

JEL Classification: D12, E21

Suggested Citation

Johnson, Kathleen and Pence, Karen M. and Vine, Daniel J., Auto Sales and Credit Supply (September 23, 2014). FEDS Working Paper No. 2014-82, Available at SSRN: https://ssrn.com/abstract=2520172 or http://dx.doi.org/10.2139/ssrn.2520172

Kathleen Johnson

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Karen M. Pence (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-452-2342 (Phone)
202-728-5887 (Fax)

Daniel J. Vine

Board of Governors of the Federal Reserve System ( email )

20th and C Streets, NW
Mail Stop 82
Washington, DC 20551
United States

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