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JOB TALK PAPER

By J. Lamar Pierce, Meghan Busse, Bronwyn Hall, David Mowery and Daniel Snow

Abstract

Why do manufacturer-owned car lessors lose so much money on leases, despite having proprietary information unavailable to other lessors? This paper explores how conflicts in organizational focus within vertically integrated firms can hurt subsidiary performance. To examine this, I identify the differences between the reaction of the captive leasing subsidiaries of automobile manufacturers to product and market characteristics and the reaction of their independent leasing competitors. While independent lessors write contracts that reflect risk from obsolescence and durability concerns, captives clearly pursue a second agenda from their corporate parents—the use of lease subsidization to sell unwanted vehicles. And while intentional lease subsidization may ultimately benefit the manufacturer, the organizational focus of car manufacturers on sales and market share has the additional effect of hindering the captive subsidiary’s ability to account for risk in lease contracts even when subsidization is unnecessary. I find evidence that unlike their independent competitors, captive lessors fail to adjust lease terms to variation i

Year: 2003
OAI identifier: oai:CiteSeerX.psu:10.1.1.196.235
Provided by: CiteSeerX
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