The Replacement Demand for Motor Vehicles: Evidence from the Survey of Consumer Finances

The motor vehicle industry has undergone important changes in recent years, including a shift in production from autos to light trucks and growth of vehicle leasing. This paper uses household-level data from the Federal Reserve’s Survey of Consumer Finances to document changes in households’ acquisitions and financing of motor vehicles from 1989 to 2001. We examine what types of vehicles households had, what financing arrangements were used to acquire them, and how vehicle holdings vary with such household characteristics as income, age, wealth, and creditworthiness. The data provide useful insights into the determinants of replacement demand and the use of alternative financing arrangements like leasing.

Introduction
The motor vehicle sector plays a significant role in the United States economy. Although it accounts for a relatively small share of U.S. gross domestic product (under 4 percent in the past 15 years), fluctuations in its output contribute importantly to swings in aggregate output (Figure 1). Thus, developments in the motor vehicle industry are carefully watched in part because of their macroeconomic implications. r be able to lower short-term interest rates to react to an eventual pick-up in deflationary forces.

Author: Ana Aizcorbe, Martha Starr, and James T. Hickman

Source: Lancaster University Management School

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