NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Are Consumers Affected by Durable Goods Makers' Financial Distress? The Case of Auto Manufacturers

Ali Hortaçsu, Gregor Matvos, Chad Syverson, Sriram Venkataraman

NBER Working Paper No. 16197
Issued in July 2010
NBER Program(s):   CF   IO

The financial decisions of durable goods makers can impose spillovers on their consumers. Namely, durable goods provide a consumption stream that frequently depends on services provided by the manufacturer (e.g., warranties, parts, and maintenance). Manufacturer bankruptcy, or even the possibility thereof, threatens this service provision and can substantially reduce the value of its products to their current owners. We test this hypothesis in one of the largest durable goods markets, automobiles, using data on millions of used cars sold at wholesale auctions around the U.S. during 2006-8. We find that an increase in an auto manufacturer's financial distress results in a contemporaneous drop in the prices of its cars at auction, controlling for a host of other influences on price. The estimated effects are statistically and economically significant. Furthermore, cars with longer expected service lives (those within manufacturer warranty, having lower mileage, or in better condition) see larger price declines than those with shorter remaining lives. These patterns do not seem to be driven solely by reduced demand from auto dealers affiliated with the troubled manufacturers or by contemporaneous declines in new car prices. Our estimates imply a potentially large indirect cost of financial distress on car manufacturers.

download in pdf format
   (410 K)

email paper

This paper is available as PDF (410 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w16197

Published: \Indirect Costs of Financial Distress in Durable Goods Industries: The Case of Auto Manufacturers," with Gregor Matvos, Chad Syverson and Sriram Venkataraman, Review of Financial Studies , v. 26, no.5, 2013, pp. 1248-1290.

Users who downloaded this paper also downloaded these:
Heider and Ljungqvist w18263 As Certain as Debt and Taxes: Estimating the Tax Sensitivity of Leverage from Exogenous State Tax Changes
Hashmi and Van Biesebroeck w15959 Market Structure and Innovation: A Dynamic Analysis of the Global Automobile Industry
Busse, Knittel, and Zettelmeyer w15590 Pain at the Pump: The Differential Effect of Gasoline Prices on New and Used Automobile Markets
Gowrisankaran and Rysman w14737 Dynamics of Consumer Demand for New Durable Goods
Lychagin, Pinkse, Slade, and Van Reenen w16188 Spillovers in Space: Does Geography Matter?
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us