Quantifying Consumer Perception of a Financially Distressed Company

Abstract

To measure how consumers respond to negative information about the financial health of a durable-goods producer, I use the prices at which vehicles sell in secondary markets to quantify consumer perception of the Chrysler Corporation during the period surrounding the Chrysler Loan Guarantee Act of 1979. I focus on Chrysler's July 31, 1979 announcement of financial distress and request for assistance from the U.S. government. The trend in the prices of used Chrysler vehicles relative to those of its American competitors provides strong support for the claim that consumers reduce their willingness to pay for the goods of a financially distressed company.