Incentives and Prices for Motor Vehicles: What Has Been Happening in Recent Years?

41 Pages Posted: 18 May 2006

See all articles by Carol A. Corrado

Carol A. Corrado

The Conference Board; Georgetown University - Center for Business and Public Policy

Maria Ward Otoo

Board of Governors of the Federal Reserve System

Wendy E. Dunn

Board of Governors of the Federal Reserve System

Date Written: January 2006

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.

Keywords: Price indexes, motor vehicles, motor-vehicle financing

JEL Classification: E3, L62

Suggested Citation

Corrado, Carol A. and Ward Otoo, Maria and Dunn, Wendy E., Incentives and Prices for Motor Vehicles: What Has Been Happening in Recent Years? (January 2006). FEDS Working Paper No. 2006-09, Available at SSRN: https://ssrn.com/abstract=902911 or http://dx.doi.org/10.2139/ssrn.902911

Carol A. Corrado

The Conference Board ( email )

845 Third Avenue
New York, NY 10022
United States
202-340-0252 (Phone)

Georgetown University - Center for Business and Public Policy ( email )

Washington, DC 20057
United States

HOME PAGE: http://cbpp.georgetown.edu

Maria Ward Otoo

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-452-2236 (Phone)
202-452-5296 (Fax)

Wendy E. Dunn (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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