Credit as a Production-Smoothing Device: The Case of Automobiles, 1913–1938

Abstract

Credit financing of automobile sales and dealer inventories was provided primarily by hundreds of sales finance companies in the interwar United States. The few finance companies tied to auto manufacturers wrote 90 percent of credit business. Manufacturers initially established finance companies not to bolster retail sales but to finance dealers' wholesale inventory so manufacturers could lower average costs by smoothing seasonal production patterns. Moreover, until the Justice Department intervened, manufacturers apparently illegally coerced franchised dealers into using the manufacturer's preferred finance company rather than an independent.

Does inequality lead to a financial crisis?

“…The historical record is not consistent with the RKR hypothesis in this regard. Olney (1989) demonstrates that a major driver of consumer credit for automobiles, an important component of overall consumer credit, was pressure from automobile manufacturers. Producers wanted retailers to carry the costs of the winter inventory buildup so that production could be smoothed and average costs could be lower.…”

“…Often they did so by purchasing installment contracts from dealers. The original intent was not to "bolster retail sales but to finance dealer's wholesale inventory" (Olney, 1989).…”

Irresponsible Lending? A Case Study of a U.K. Credit Industry Reform Initiative

“…Less than a century ago the credit industry barely existed, so what has caused this rapid expansion? The consumer boom following World War I resulted in a shift from the earlier mentality of saving up for a product and then purchasing it for cash to ''buy now pay later'' (Olney, 1989(Olney, , 1991. Following the Second World War a period of growth fuelled the credit industry.…”

Inventories, financial structure and market structure

“…In this perspective, it is an issue of interest to study the "rms' interaction between inventory policy and their "nancial structure. Other studies such as Carpenter et al [3], Kashyap et al [4] and Olney [5] "nd a stronger impact of cyclical #uctu-ations on small "rms' inventory variability than on that of bigger "rms. These authors link this result to the fact that smaller "rms can only obtain external funds through credits with ST maturities.…”

“…Reasoning as we did in the comparative static analysis over B, we use (3) to get *X /* " 1!n /n[X ]. Joining them together, we get As y *y+ (see (5) and (11) …”