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Incentives and prices for motor vehicles: what has been happening in recent years?

Author

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  • Carol Corrado
  • Wendy E. Dunn
  • Maria Ward Otoo

Abstract

We address the construction of price indexes for consumer vehicles using data collected from a national sample of dealerships. The dataset contains highly disaggregate data on actual sales prices and quantities, along with information on customer cash rebates, financing terms, and much more. Using these data, we are able to capture the actual cash and financing incentives taken by consumers, and we demonstrate that their inclusion in measures of consumer vehicle prices is important. We also document other features of retail vehicle markets that interact and overlap with price measurement issues. In particular, we construct vehicle price indexes under different assumptions about what constitutes a "new" product in moving from one model year to the next. For the period that we study (1999 to 2003), a period during which incentives became more widespread and new model introductions rose, our preferred price index drops faster than the CPI for new vehicles.

Suggested Citation

  • Carol Corrado & Wendy E. Dunn & Maria Ward Otoo, 2006. "Incentives and prices for motor vehicles: what has been happening in recent years?," Finance and Economics Discussion Series 2006-09, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:2006-09
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    References listed on IDEAS

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    1. repec:ucp:bknber:9780226304557 is not listed on IDEAS
    2. Mark Doms & Ana M. Aizcorbe & Carol Corrado, 2003. "When do matched-model and hedonic techniques yield similar measures?," Working Paper Series 2003-14, Federal Reserve Bank of San Francisco.
    3. Diewert, W. Erwin, 1998. "High Inflation, Seasonal Commodities, And Annual Index Numbers," Macroeconomic Dynamics, Cambridge University Press, vol. 2(04), pages 456-471, December.
    4. Adam Copeland & Wendy Dunn & George Hall, 2005. "Prices, Production and Inventories over the Automotive Model Year," NBER Working Papers 11257, National Bureau of Economic Research, Inc.
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    6. Diewert, Erwin, 2007. "Index Numbers," Economics working papers diewert-07-01-03-08-17-23, Vancouver School of Economics, revised 31 Jan 2007.
    7. Mark Bils, 2004. "Measuring the Growth from Better and Better Goods," NBER Working Papers 10606, National Bureau of Economic Research, Inc.
    8. Carol Corrado & John Haltiwanger & Dan Sichel, 2005. "Measuring Capital in the New Economy," NBER Books, National Bureau of Economic Research, Inc, number corr05-1, August.
    9. Pashigian, B Peter & Bowen, Brian & Gould, Eric, 1995. "Fashion, Styling, and the Within-Season Decline in Automobile Prices," Journal of Law and Economics, University of Chicago Press, vol. 38(2), pages 281-309, October.
    10. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
    11. W. Erwin Diewert, 2005. "Issues in the Measurement of Capital Services, Depreciation, Asset Price Changes, and Interest Rates," NBER Chapters,in: Measuring Capital in the New Economy, pages 479-556 National Bureau of Economic Research, Inc.
    12. W. Erwin Diewert, 2003. "Measuring Capital," NBER Working Papers 9526, National Bureau of Economic Research, Inc.
    13. Diewert, W. Erwin, 1999. "Index Number Approaches To Seasonal Adjustment," Macroeconomic Dynamics, Cambridge University Press, vol. 3(01), pages 48-68, March.
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    Cited by:

    1. Soren T. Anderson & James M. Sallee, 2011. "Using Loopholes to Reveal the Marginal Cost of Regulation: The Case of Fuel-Economy Standards," American Economic Review, American Economic Association, vol. 101(4), pages 1375-1409, June.
    2. Adam Copeland & George Hall, 2011. "The response of prices, sales, and output to temporary changes in demand," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 26(2), pages 232-269, March.
    3. Adam Copeland, 2008. "The Dynamics of Automobile Expenditures," 2008 Meeting Papers 852, Society for Economic Dynamics.
    4. Adam Copeland & Wendy E. Dunn & George J. Hall, 2005. "Prices, production, and inventories over the automotive model year," Finance and Economics Discussion Series 2005-25, Board of Governors of the Federal Reserve System (U.S.).
    5. McManus, Walter, 2007. "The link between gasoline prices and vehicle sales:economic theory trumps conventional Detroit wisdom," MPRA Paper 3463, University Library of Munich, Germany.
    6. Sumit Agarwal & Brent W. Ambrose & Souphala Chomsisengphet, 2008. "Determinants of automobile loan default and prepayment," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q III, pages 17-28.
    7. Aizcorbe, Ana & Bridgman, Benjamin & Nalewaik, Jeremy, 2010. "Heterogeneous car buyers: A stylized fact," Economics Letters, Elsevier, vol. 109(1), pages 50-53, October.
    8. Adam Hale Shapiro & Ana Aizcorbe, 2010. "Implications of Consumer Heterogeneity on Price Measures for Technology Goods," BEA Working Papers 0062, Bureau of Economic Analysis.
    9. Ashley Langer & Nathan H. Miller, 2008. "Automobile Prices, Gasoline Prices, and Consumer Demand for Fuel Economy," EAG Discussions Papers 200811, Department of Justice, Antitrust Division.
    10. Adam Copeland, 2014. "Intertemporal substitution and new car purchases," RAND Journal of Economics, RAND Corporation, vol. 45(3), pages 624-644, September.

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    Keywords

    Automobiles - Prices ; Automobile industry and trade;

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