Summary of Auto Sales and Credit Supply

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Auto Sales and Credit Supply summary

Editorial Rating

8

Qualities

  • Analytical
  • Innovative
  • Eye Opening

Recommendation

When the US economy catches a cold, car sales end up in the emergency room. Recessions are especially tough on auto sales, which typically correlate to credit availability, interest rates and consumer economic sentiment. That may seem obvious, given the auto sector’s impact on the US economy, but this report from Federal Reserve economists Kathleen W. Johnson, Karen M. Pence and Daniel J. Vine offers an intriguingly nuanced look into car buyers’ decision making under various economic conditions. getAbstract recommends this scholarly report to investors and economists seeking insight into the psychology and economics of auto sales.

About the Authors

Kathleen W. Johnson, Karen M. Pence and Daniel J. Vine are Federal Reserve economists.

Summary

Car sales are especially sensitive to economic conditions, and demand for autos – or lack thereof – plays an outsized role in economic downturns. Motor vehicle sales make up only one-third of durable goods consumption, but in a typical recession, falling auto purchases explain nearly two-thirds of the contraction in durable goods consumption. From late 2007 to early 2009, consumer auto purchases tumbled 22%, roughly in line with past recessions. Rising unemployment and falling household wealth clearly played a role, although a spike in gasoline prices and some automakers’ bankruptcies...


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