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Auto Industry Cyclicality: Difference between revisions
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==== <big>US</big> ==== | ==== <big>US</big> ==== | ||
* Spike in August 2009 sales was due to the Cash for Clunkers program.<br /> | |||
[[File:AutoUSSales.png|center|thumb|1293x1293px|<ref>https://public.tableau.com/shared/WSYQK59QR?:display_count=n&:origin=viz_share_link</ref>]] | [[File:AutoUSSales.png|center|thumb|1293x1293px|<ref>https://public.tableau.com/shared/WSYQK59QR?:display_count=n&:origin=viz_share_link</ref>]] | ||
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* '''Widely experienced negative shock to permanent income is a strong candidate explanation for the collapse.''' The explanation is consistent with the permanent income hypothesis adapted to include infrequent, discrete durable goods purchases. House price declines, on the other hand, explain only a small part of the auto sales decline. | * '''Widely experienced negative shock to permanent income is a strong candidate explanation for the collapse.''' The explanation is consistent with the permanent income hypothesis adapted to include infrequent, discrete durable goods purchases. House price declines, on the other hand, explain only a small part of the auto sales decline. | ||
* A related explanation for the d'''ecline in auto sales is the increase in uncertainty''' that many researchers have associated with the last recession. Bloom (2009) presents a model where irreversible investment in durable goods causes an increase in uncertainty to reduce purchases of durables. We note that a new vehicle purchase exhibits an aspect of irreversibility, because the resale value of a newly bought new auto falls dramatically immediately after being acquired.<ref>https://s3.amazonaws.com/real.stlouisfed.org/wp/2018/2018-019.pdf</ref> | * A related explanation for the d'''ecline in auto sales is the increase in uncertainty''' that many researchers have associated with the last recession. Bloom (2009) presents a model where irreversible investment in durable goods causes an increase in uncertainty to reduce purchases of durables. We note that a new vehicle purchase exhibits an aspect of irreversibility, because the resale value of a newly bought new auto falls dramatically immediately after being acquired.<ref>https://s3.amazonaws.com/real.stlouisfed.org/wp/2018/2018-019.pdf</ref> | ||
[[File:BlogImage BuyACar 041619.png|center|thumb|483x483px|https://www.stlouisfed.org/on-the-economy/2019/may/bigger-cause-2008-auto-sales-collapse-credit-conditions-economic-concerns]] | |||
[[File:BlogImage ReasonsNotToBuyACar 041619.png|center|thumb|482x482px|https://www.stlouisfed.org/on-the-economy/2019/may/bigger-cause-2008-auto-sales-collapse-credit-conditions-economic-concerns]] | |||
===== Cash for Clunkers Program ===== | ===== Cash for Clunkers Program ===== | ||
The program consisted of government payments to car dealers of $3,500 to $4,500 for every older less fuel efficient vehicle traded in by consumers that purchased a newer more fuel efficient vehicle. | |||
* Program induced the purchase of an additional 360,000 cars in July and August of 2009. However, almost all of the additional purchases under the program were pulled forward from the very near future; the effect of the program on auto purchases is almost completely reversed by as early as March 2010 – only seven months after the program ended<ref>https://www.nber.org/system/files/working_papers/w16351/w16351.pdf</ref> | |||
* The effect of the program on auto purchases was significantly more short-lived than previously suggested. We also find no evidence of an effect on employment, house prices, or household default rates in cities with higher exposure to the program. | |||
* Indeed, over the seven months following the end of the CARS program in late August, the sales pace has averaged 10.7 million units at an annual rate, much higher than the 9.6 million pace in the three months that preceded the program, and considerably stronger than the forecasts made by private forecasters just before enactment of the CARS program.<ref>https://obamawhitehouse.archives.gov/blog/2010/04/05/did-cash-clunkers-work-intended</ref> | |||
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