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

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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.