Auto Dealer Loan Intermediation: Consumer Behavior and Competitive Effects

75 Pages Posted: 23 Nov 2020 Last revised: 19 May 2022

See all articles by Tobias Salz

Tobias Salz

MIT

Andreas Grunewald

University of Bonn - Economic Science Area

David Low

Consumer Financial Protection Bureau

Jonathan Lanning

Consumer Financial Protection Bureau

Multiple version iconThere are 2 versions of this paper

Date Written: November 2020

Abstract

This paper studies the intermediation of auto loans through auto dealers using new and comprehensive administrative data. The arrangements between auto dealers and lenders incentivize dealers to increase loan prices. We leverage details of the corresponding contracts to demonstrate that many consumers are less responsive to finance charges than to vehicle charges. Taking this behavior into account, we estimate an equilibrium model of dealer price setting and lender competition. We explore counterfactuals where dealers have no discretion to price loans and final rates are set by lenders instead. We find large gains in consumer surplus from such a policy.

Suggested Citation

Salz, Tobias and Grunewald, Andreas and Low, David and Lanning, Jonathan, Auto Dealer Loan Intermediation: Consumer Behavior and Competitive Effects (November 2020). NBER Working Paper No. w28136, Available at SSRN: https://ssrn.com/abstract=3735703

Tobias Salz (Contact Author)

MIT ( email )

50 Memorial Dr
Cambridge, MA 02142
United States

HOME PAGE: http://https://economics.mit.edu/faculty/tsalz

Andreas Grunewald

University of Bonn - Economic Science Area ( email )

Adenauerallee 24-42
D-53113 Bonn
Germany

David Low

Consumer Financial Protection Bureau ( email )

United States

Jonathan Lanning

Consumer Financial Protection Bureau ( email )

United States

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