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Residual Value and Risk Management. Bukarest 2008. Agenda. Introduction EurotaxGlass`s Motivation – why residual value and risk management ? Two most common mistakes Ideal approach and possibilities to influence residual value performance. EurotaxGlass’s Group Strategy. - PowerPoint PPT Presentation
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Residual Value and Risk ManagementBukarest 2008
19/04/23 2
Agenda
Introduction EurotaxGlass`s
Motivation – why residual value and risk management ?
Two most common mistakes
Ideal approach and possibilities to influence residual value performance
19/04/23 3
EurotaxGlass’s Group Strategy
The leading provider of data, solutions and business intelligence services
to the European automotive community
Integrated pan-European organisation providing exceptional local support
Single source for European valuation, specification, repair and estimation data and systems
Decision-critical intelligence to all key sectors of the European automotive lifecycle
19/04/23 4
EurotaxGlass`s – Coverage
New subsidiaries
+ Rumania
+ Sweden
+ Turkey
19/04/23 5
Comprehensive range of products and solutions …
Specification and valuation
Repair and calculation
Service and maintenance
Advertising
Product group overviewProduct group overview Product selectionProduct selection
Eurotax
Print Valuations
Eurotax
Repair Estimate(IKE32)
Eurotax
Autowert
Eurotax
Forecast
Eurotax
Claims Control
• Vehicle specification (make, model and equipment)
• New car prices and history including optional equipment
• Current residual value (trade-in and retail)
• Future projected residual value
• Part prices and labour hours for damage repairs / painting
• Overlap time logic applies intelligence to repair operations
• Proprietary calculation tools for repair quotations
• Claims handling and communication solutions
• Parts prices and labour hours for maintenance operations
• Standard operations for each service interval
• Repair manuals
• Lubricants database
• Advertising in printed guides and information magazines
• On-line banner advertising and sponsored link revenue
• Sponsored forums at key industry events
• OEMs using guides for new car sales promotions
• Vehicle specification (make, model and equipment)
• New car prices and history including optional equipment
• Current residual value (trade-in and retail)
19/04/23 6
... For a wide range of customers
19/04/23 7
Leasing: Eurotax Supports the full value chain …
Major leasing operations
„The one-stop shop“
… and all supported by a common, international and unique code
SalesOperative
Fleet management
Cash & risk management
De-fleetingProduct
Management
One common unique Eurotax Code
Total cost of ownership
Valuation data
Repair calculation information
Fleet revaluation Valuation data
Remarketing benchmark information
Forecast
New car price data
Service & Maintenance data
Total cost of ownership
Forecast
Service & Maintenance data
Repair calculation information
Light damage estimation
New car price data
Service & Maintenance data
Current Core productsFurther products to be launched in Rumania later
19/04/23 8
Agenda
Introduction EurotaxGlass`s
Motivation – why residual value and risk management ?
Two most common mistakes
Ideal approach and possibilities to influence residual value performance
19/04/23 9
Depreciation is the biggest cost block during owning a car … Example German market …
RV depreciation39%
Finance2%Fuel
19%
Maintenance6%
Tyres12%
Tax5%
Insurance16%
others1%
RV depreciation43%
Finance2%
Fuel20%
Maintenance7%
Tyres5%
Tax5%
Insurance16%
others2%
Cars up to 180 PS
Cars up to 130 PS
Source: Autoflotte Germany
19/04/23 10
... example
20,9 % in trade
in
Example Germany Ford Mondeo TD BMW 320dNew price (09/ 99) € 18'918.00 € 24'747.00Compare options € 1'772.00 € 2'836.00Total new price € 20'690.00 € 27'583.00
Leasing period 36 36Leasing mileage 90'000 90'000
RV trade in % 35.8 56.7RV trade in € € 7'400.00 € 15'600.00
Interest rate % 8 8
Leasing rate € 398,49 € 358,30
Target rate NP € 298,91 € 358,30
Difference - € 99,58 € 0,00
0,75:1
… and individual Depreciation has a significant impact on the Leasing attractiveness …
19/04/23 11
Agenda
Introduction EurotaxGlass`s
Motivation – why residual value and risk management ?
Two most common mistakes
Ideal approach and possibilities to influence residual value performance
19/04/23 12
1. Relying on Fair Market Values While Not Analyzing Actual Selling Prices
2. Relying on Selling Performance While Not Analyzing Market Dynamics
THE BEST PREDICTIVE APPROACH COMBINES
• USED CAR MARKET UNDERSTANDING
• OWN RE-MARKETING KNOWLEDGE
The most common two mistakes when setting contract residual values
19/04/23 13
Contract: 3 years / 120.000 kmRV Calculated as per Market Reference: € 9.045 (incl. Options)RV Calculated as per Market Reference: € 8.640 (excl. Options)
Remarketing performance normally is 100%
However if you analyse the latest sells of the same vehicle - WITHOUT options it sells around € 8.000FEATURING all of the options it sells around € 10.000 !
Actual Selling Prices Span (Distribution)
€ 8.000 € 10.000
Contract RV Incl.
Options
Contract RV Excl.
Options
Potential Loss Pricing Gap
Ignoring Actual Selling Prices DistributionExample…
19/04/23 14
Make Model Technical data Age Mileage Moment of Sale Equipment value
Equipment type and combination Exterior colour Interior colour and materials Exterior and Interior combination General condition Channel through which sold Sales Person Buyer needs (stated or not) Concentration on parking lot Time pressure to sell/buy Special deals and agreements …
Make Model Technical data Age Mileage Moment of Sale Equipment value
Average colour Average condition Average dealer retail/ trade in Average sales person Average buyer needs Domestic market only
However the difference is no mistake nor on purpose – it is simply unavoidable
External market benchmark depends on :
Actual sales result depends on :
Match
Miss-match
19/04/23 15
Market dynamics influencing residual values: Overview
4. Segment allocation, communication of benefits
3. Configuration strategy & policy, standard & optional
equipment
8. Life cycle position
6. Image
2. Distribution strategy, marketing, pricing &
discount policy
1. Supply & demand
%
5. Design, communication of values
7. Fulfilment of expectations
19/04/23 16
Evolution of residual values and national differences
Backup
19/04/23 17
Correlation between product life cycle and residual value
Schwacke Automobil IndexFahrzeugalter: 48 Monate, 60.000 km Laufleistung, Einkaufswerte
30
35
40
45
50
55
60
65
Mai 98 Nov 98 Mai 99 Nov 99 Mai 00 Nov 00 Mai 01 Nov 01 Mai 02 Nov 02 Mai 03 Nov 03 Mai 04 Nov 04 Mai 05 Nov 05
Peugeot 307 1.4 Presence/306 1.4 Prescene Fiat Bravo 1.3 SX/1.4 16V SX
Ford Focus 1.4 Trend/Escort 1.4 Fun/1.4 CL Renault Megane Classic 1.4 Expression/1.4 RT/1.6 RT/R 19 Bellevue 1.4 eco
VW Golf 1.4 Trendline/1.4 CL Opel Astra 1.6 Comfort/1.4/1.4 GL
LaunchFord Focus
LaunchGolf IV
Backup
19/04/23 18
Influence of Image: Example Toyota Yaris / Starlet
LaunchToyota Yaris
Toyota Starlet
ADAC AutoMarxX 2002 ADAC AutoMarxX 2005
TOP 3:German premiums
Rising star:Toyota
ImprovementAlso impacts
RV´s
Backup
19/04/23 19
Agenda
Introduction EurotaxGlass`s
Motivation – why residual value and risk management ?
Two most common mistakes
Ideal approach and possibilities to influence residual value performance
19/04/23 20
Residual value and Risk Analysis – Ideal Approach
Hist. Benchmark (external source)
Hist. sales results (internal)
Relation – own sales to Benchmark
Market benchmark (external source)
Adjust for Individual
performance
Difference: Contract values vs. adjusted forecasts
Contract values
RV risk exposure
Adjust for excess mileage rates, etc.
Data Analysis
19/04/23 21
Example of Risk Analysis
FORD MONDEO 5DR HATCH 1.8i ZETEC, UK Market
19/04/23 22
Influencing RV’s From the Leasing Companies’ Perspective
Influencing RVs … … or Maximizing Re-Sale Value and Remarketing Performance ?
• Influencing the Market ?
Not possible for all playersVery large volumes, nearly monopolistic situationsMay have a certain cost and bear significant risks
• Making the Most of the Market ?
Flexible, cost effective strategiesProcess and performance basedCan be implemented at all levels of the business
Pric
e
Quantity
Dem
and
Supp
ly
19/04/23 23
Influencing RV’s From the Leasing Companies’ Perspective
Maximizing Re-Sale Value and Remarketing Performance
MARKET(S)VEHICLES INDIVIDUAL FEATURESSELLING PROCESSES
Understand drivers of used car selling prices
Identify drivers with maximum impact
Select drivers t.b. operated at sensible cost
Take action !
INVOLVE IN-HOUSE EXPERTSUSE BENCHMARK
ANALYTICS NEEDEDDO THE HOMEWORK
CREATE BUSINESS AWARENESSALIGN OBJECTIVES
19/04/23 24
1. Understand ALL the drivers affecting used car selling prices
• Make• Model• Technical data• Age• Mileage• Moment of Sale• Equipment value (not just worth)• Equipment type and combination• Exterior colour• Interior colour and materials• Exterior and Interior combination
• …
Influencing RV’s From the Leasing Companies’ Perspective
19/04/23 25
Influencing RV’s From the Leasing Companies’ Perspective
1. Understand ALL the drivers affecting used car selling prices
Re-Marketing Experience is a major asset… in relation with adaquatemarket benchmarks
• …• General condition of cars• Presentation• Concentration on parking lot• Sales People• Buyer needs (stated or not)• Weather• Time pressure to sell/buy• Channel through which sold• Special deals and agreements• …
19/04/23 26
Influencing RV’s From the Leasing Companies’ Perspective Example – influence factor colour
19/04/23 27
Influencing RV’s From the Leasing Companies’ Perspective Example – options
Price new 28.730
Metallic 630
Lether 3.950
AC serie
Sun roof 920
RV Basis 14.950
RV total 16.100
29.650
670
1.990
serie
950
15.250
16.050
31.505
806
1.850
1.636
1.172
17.950
19.550
26.375
465
1.990
serie
860
12.600
13.350
Already few extras can increase used car value strongly Quelle: Eurotax Händlereinkaufswerte 36 monate, 120 tsd KM
Audi A4 Avant 1.9 TDI
BMW 320 D touring
MB C220 CDIPassat 1.9
TDI
19/04/23 28
… But keep in mind - options have different depreciation behaviour
Significant Differences in the RV dependent on desirability of options
Quelle: Eurotax
Depreciation with diferent Desirabilties
Age in Months
RV
in %
Depreciation, Basic car and desirability cluster 1
36
Depreciation options Desirability cluster 7
19/04/23 29
Influencing RV’s From the Leasing Companies’ Perspective
3. Select drivers that can be operated at sensible cost
e.g. 1. – Can we consider promoting certain car configurations ?
e.g. 2. – Should we recondition terminated vehicles?
e.g. 3. – Is a showroom a good investment ?
e.g. 4 – How to motivate driver to purchase at the end of lease ?
Cost / Benefit Analysis
19/04/23 30
Influencing RV’s From the Leasing Companies’ Perspective
4. Take action !
Involve people on the job …Look at cross-functional impacts
e.g. – How to set-up a deal for a large number of the exact same model ?
• Make• Model• Fleet Concentration• Required Equipment• Exterior colour• Interior colour and materials• Buy-back negociations
• Vehicle re-conditioning• Concentration / parking lot• Sales Talent• Moment of Sale•…
• Make• Model• Age• Mileage• Equipment types and value• Fleet run-off profiles
Align Cross-Functional Objectives
SOURCING SALES REMARKETING
Thank you very much for your attention
