Conspicuous consumption: Vehicle purchases by non-prime consumers

Abstract

Lower-income consumers who seek to increase their perceived social status or to emulate their wealthier peers may be motivated to purchase conspicuous luxury goods. Using a vehicle financing dataset, we find that non-prime consumers value vehicle prestige more than the average consumer. The stronger preferences for prestige lead non-prime consumers to purchase more expensive vehicles than they otherwise would. The preferences for prestige are driven both by status signaling and peer emulation motives. Furthermore, we show that larger vehicle purchases financed by auto loans lead to worse loan performance and credit standing for non-prime consumers.