The Impact of Product Recalls on the Secondary Market:Evidence from Dieselgate

We examine the effects of Volkswagen's emissions scandal (`Dieselgate`) on the secondary car market in Israel. Using administrative data on all car transactions in Israel, we measure the scandal's effect on the number and the composition of transactions involving used vehicles made by the Volkswagen Group. We also use data from the leading classified ad website and measure the effect of the scandal on the resale price of used Volkswagen vehicles. According to our findings, the Volkswagen emissions scandal had a statistically significant negative effect on the number of transactions involving vehicles made by Volkswagen (nearly -18.0%) and on their resale price (nearly -6.0%). We also find that the reduction in the number of transactions was driven mostly by private sellers and that non-private sellers barely shied away from the market. We discuss potential explanations for these findings.