Fig. [ ]. Source: Saez and Zucman .
A serious potential objection to the consumption reallocation hypothesis
would be that new automobiles were less expensive than new houses, thus
it probably could not have been the same set of people who preferred
purchasing new cars to new houses. However, this objection can be
addressed by taking into account that both a large part of new houses
and a large part of new cars were purchased on credit.
In 1929, the share of new cars bought on credit reached the level of
61%, a three-percentage point increase over the 1928 level. Based on
the data on car installment loans from two major providers (GMAC and
CCC) whose total amount rose by 26% in 1929 over 1928, it is possible
to suggest that the total amount of such loans rose at a similar
rate.11The calculations in this paragraph are based on the data
from Olney . This rate of increase in lending is similar to the rate
of increase in the new car registrations. At the same time, Gärtner
demonstrates that the total mortgage debt almost did not increase in
1929 as compared to 1928, whereas in the preceding three years it was
rising by around 7-8% per year.
It remains to deal with the question why the automobile production faced
a significant decline in the second half of 1929, and whether it may
have been the catalyst for the initial phase of the Great Depression.
Although it is difficult to establish it with certainty, similarly to
the case with residential construction, it appears that the troubles of
the automobile production industry are related more to the satiation of
the market for new cars. This hypothesis is bolstered by the fact that
the spike in automobile production in 1928-29 followed its temporary
decline caused largely by the decision of Ford Motor Company to
temporarily close its Ford Model T assembly lines in 1927 to switch to
producing the new model A.