What Was Bad for General Motors Was Bad for America: The Automobile Industry and the 1937/38 Recession

Abstract

This article shows that there were timing, geographic, and sectoral anomalies in the 1937/38 recession, none of which are easily explained by aggregate shocks. I argue that an auto industry supply shock contributed both to the recession's anomalies and to its severity. Labor-strife-induced wage increases and an increase in raw material costs led auto manufacturers to raise prices in fall 1937. Expectations of these price increases brought auto sales forward. When auto prices finally rose, sales plummeted. This shock likely reduced 1938 auto sales by roughly 600,000 units and 1938 GDP growth by 0.5–1 percentage point.