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Report
Interest rates and the market for new light vehicles
We study the impact of interest rates changes on both the demand for and supply of new light vehicles in an environment where consumers and manufacturers face their own interest rates. An increase in the consumers? interest rate raises their cost of financing and thus lowers the demand for new vehicles. An increase in the manufacturers? interest rate raises their cost of holding inventories. Both channels have equilibrium effects that are amplified and propagated over time through inventories, which serve as a way to both smooth production and facilitate greater sales at a given price. ...
Newsletter
Economic Growth to Accelerate in 2018 and Then Ease in 2019 as Auto Sales Downshift
According to participants in the Chicago Fed?s annual Automotive Outlook Symposium (AOS), the nation?s economic growth is forecasted to improve this year and then moderate close to its long-term average in 2019. Inflation is expected to increase in 2018 and to pull back in 2019. The unemployment rate is anticipated to decrease to 3.8% by the end of 2018, but then tick back up next year. Light vehicle sales are predicted to decrease from 17.2 million units in 2017 to 17.0 million units in 2018 and then to 16.7 million units in 201
Report
The production impact of "cash-for-clunkers": implications for stabilization policy
Stabilization policies frequently aim to boost spending as a means to increase GDP. Spending does not necessarily translate into production, however, especially when inventories are involved. We look at the ?cash-for-clunkers? program that helped finance the purchase of nearly 700,000 vehicles in 2009. An analysis of auto sales and production movements reveals that the program did prompt a large spike in sales. But the program had only a modest and fleeting impact on production, as inventories buffered the movements in sales. These findings suggest caution in judging the efficacy of such ...
Journal Article
Subprime Securitization Hits the Car Lot
Are fears of a "bubble" in auto lending overstated?
Journal Article
Supply Chain Disruptions, Inflation, and the Fed
Used cars became a hot commodity during the pandemic, with their prices increasing by roughly 50 percent between January 2020 and December 2021. The spike in used car prices was a prominent example of how global supply chain disruptions have contributed to U.S. inflation. It also highlighted the complexity of global supply and demand relationships.
Discussion Paper
End of the Road? Impact of Interest Rate Changes on the Automobile Market
The Federal Reserve has kept interest rates at historic lows for the last six years, but eventually rates will return to their long-term averages. That means both policymakers and the public will once again be asking one of the classic questions in monetary economics: What are the impacts of rising interest rates on the real economy? Our recent New York Fed staff report ?Interest Rates and the Market for New Light Vehicles,? considers this question for the U.S. market for new cars and light trucks. We find strong evidence that rising rates will dampen activity: Our model predicts that in the ...
Newsletter
The Impact of Trade on the North American Auto Industry
On September 4–5, 2019, the Chicago Fed held a conference at its Detroit Branch to discuss trade’s role in shaping the North American auto industry. This event brought together nearly 100 attendees, including industry leaders, academics, and policymakers.
Report
The dynamics of automobile expenditures
This paper presents a dynamic model for light motor vehicles. Consumers solve an optimal stopping problem in deciding if they want a new automobile and when in the model year to purchase it. This dynamic approach allows for determining how the mix of consumers evolves over the model year and for measuring consumers' substitution patterns across products and time. I find that temporal substitution is significant, driving consumers' entry into and exit from the market. Through counterfactuals, I show that because consumers will temporarily substitute to a large degree, failure to account for ...
Journal Article
Auto Production Footprints: Comparing Europe and North America
Today?s footprints of motor vehicle production1 in Europe and North America appear at first glance to be remarkably similar: In both regions, plants producing motor vehicles are highly agglomerated, which is typical of manufacturing activities. The auto industry is a global industry: A dozen or so mass producers compete with one another around the world. Because these automakers employ similar production models in their plants, one might expect similar forces to shape their production location decisions. This article evaluates whether the same general factors explain the broad patterns seen ...
Newsletter
The VW Scandal and Evolving Emissions Regulations
In September 2015, Volkswagen (VW) admitted to having programmed nearly 11 million of its diesel vehicles to cheat on tailpipe emissions tests. To put VW?s emissions rigging into a broader context, the authors review the different approaches that the U.S. and Europe have historically taken in regulating automotive emissions and fuel economy. Moreover, they discuss the scandal?s implications for regulatory changes in both regions.