Dislocated Credit: Captive Lending as Liquidity Management.
We study the impact of vertical integration of manufacturing and credit provision on the propagation of financial shocks in durable good markets. Captive lending enables manufacturers affected by financing shocks to generate liquidity through a dislocation in lending terms and standards, that increases the cash collected up front from the sale of inventory. We provide evidence exploiting a multi-country dataset on securitized car loans and quasi-exogenous variation from the Volkswagen emissions scandal. Our results show that the direction, magnitude and heterogeneity of financial shock transmission is altered when financial intermediation is internalized by manufacturers.