An Analysis of the Automobile Market: Modeling the Long-Run Determinants of the Demand for Automobiles: Volume I - The Wharton E.F.A. Automobile Demand Model

Schink, George R.; Loxley, Colin J. · 1979 · ROSA P / United States. Department of Transportation. National Highway Traffic Safety Administration

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Summary

This 1979 report by Wharton Econometric Forecasting Associates (WEFA) presents the "Wharton E.F.A. Automobile Demand Model," an econometric framework designed to forecast long-run trends in the U.S. automobile market through the year 2000. The primary objective was to create a tool for policy analysis and forecasting that could assess the impacts of demographic shifts, economic conditions, technological changes, and policy interventions—such as fuel efficiency standards or tax laws—on auto stock, new sales, and scrappage. The model was developed for the U.S. Department of Transportation to support ongoing research and policy evaluation. The methodology centers on the concept of "desired" (equilibrium) auto stock, which is distinguished from actual stock. Desired stock and its composition by size-class are determined using cross-sectional state data from 1972, allowing the equations to represent long-run equilibrium relationships. Key determinants include demographic factors (family size, licensed drivers), income levels and distribution, and a novel metric termed "capitalized cost per mile," which discounts all ownership and operating costs relative to miles driven. Actual market outcomes, such as new registrations and scrappage, are modeled as adjustments to the gap between desired and actual stock, with parameters estimated from annual time-series data. The model also incorporates detailed analyses of fuel efficiency, vehicle weights, and used car markets. The baseline forecast projects a modest increase in desired stock per family unit, rising from 1.25 in 1975 to 1.33 by 2000, with saturation expected by the late 1980s. Total desired stock is projected to grow to 134 million units by 2000. New registrations are expected to peak at over 12 million units in 1981, followed by a period of stagnation in the 1980s, before reaching approximately 14 million units by 2000. The model predicts a sustained shift toward mid- and full-size cars, with their combined market share rising from 40% in 1975 to over 51% by 2000, while subcompact shares decline. Sensitivity analyses reveal that while income shocks have powerful immediate effects on sales, the model exhibits long-run stability; for instance, a 1% increase in gasoline prices leads to only minor long-term changes in total registrations, though it shifts market share toward smaller, more efficient vehicles. The significance of this work lies in its comprehensive integration of economic, demographic, and technological variables into a unified long-run forecasting tool. By distinguishing between equilibrium desires and cyclical adjustments, the model provides a nuanced understanding of automobile demand dynamics. It offers policymakers a robust instrument for evaluating the long-term consequences of energy conservation policies, environmental regulations, and tax structures, demonstrating that while short-term market reactions to shocks can be sharp, long-term equilibrium adjustments are often moderated by consumer shifts in vehicle size and efficiency preferences.

Key finding

New car sales are projected to peak at over 12 million units in 1981 before entering a period of stagnation, with total desired auto stock reaching saturation per family by the late 1980s and growing only at the rate of family formation thereafter.

Methodology

modeling

Provenance

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