Product Sales Incentive Spillovers to the Lending Market: Evidence from Subprime Auto Loan Defaults

• 成果类型: Article
• 署名作者: Jansen, Mark; Pierce, Lamar; Snyder, Jason; Nguyen, Hieu
• 署名单位: Utah System of Higher Education; University of Utah; Washington University (WUSTL); Foreign Trade University FTU
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2023.4935
• 发表日期: 2024
• 页码: 5463-5480
• 关键词: industrialorganiation; firmobjectives; organiationandbehavior; organiationalstudies; motivation-incentives; organiational studies; strategy; finance; ECONOMICS; microeconomic behavior

摘要

This paper shows how convex incentives in vertical contracts between manufacturers and retailers can induce sales behavior with costs to consumers. We examine this problem in the automotive sector, where manufacturers commonly motivate new vehicle sales through dealer incentive programs with large discrete bonuses determined by monthly sales targets. Using subprime car loans from over 3,500 dealerships, we document high default rates on new car loans originated at the end of the month-the period when dealerships attempt to secure target-based bonuses by intensifying efforts to sell new cars. We provide evidence consistent with the observed higher default rates resulting from customers purchasing new vehicles at month end. New car purchases stretch borrower budgets and expose borrowers to rapid depreciation, which consigns the borrower with negative equity through much of the loan term. Our results imply that the quartile of customers with the highest payment-to-income ratio see default rates increase from 13.6% to 19.7% on the last day of the month. Although consumers bear high costs from increased defaults, we find no evidence that lenders that purchase the loans are hurt by the default increase. Our results demonstrate how the behaviors induced by convex incentive schemes for sales are borne by customers.