Residual Value and Risk Management Bukarest 2008

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
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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
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EurotaxGlass`s – Coverage
New subsidiaries
+ Rumania
+ Sweden
+ Turkey
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Decision Critical Intelligence
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Comprehensive range of products and solutions …
Product group overview
• Vehicle specification (make, model and equipment)
Specification
and valuation
Product selection
Eurotax
Print Valuations
• New car prices and history including optional equipment
Eurotax
• Current residual value (trade-in and retail)
Autowert
• Future projected residual value
• Part prices and labour hours for damage repairs / painting
Repair and
calculation
• 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
Service and
maintenance
Eurotax
Repair Estimate
(IKE32)
Eurotax
Forecast
Eurotax
Claims Control
• 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
Advertising
• Sponsored forums at key industry events
• OEMs using guides for new car sales promotions
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... For a wide range of customers
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Leasing: Eurotax Supports the full value chain …
… and
allleasing
supported
by a common, international and unique code
Major
operations
Product
Management
Sales
Operative
Fleet
management
Cash & risk
management
De-fleeting
One common unique Eurotax Code
New car price data
New car price data
Valuation data
Fleet revaluation
Valuation data
Service &
Maintenance data
Service &
Maintenance data
Repair calculation
information
Repair calculation
information
Total cost of
ownership
Total cost of
ownership
Service &
Maintenance data
Light damage
estimation
Forecast
Forecast
Remarketing
benchmark
information
Current Core products
Further products to be launched in Rumania later
„The one-stop shop“
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Agenda
Introduction EurotaxGlass`s
Motivation – why residual value and risk management ?
Two most common mistakes
Ideal approach and possibilities to influence residual value performance
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Depreciation is the biggest cost block during owning a car
… Example German market …
others
1%
Insurance
16%
Tax
5%
Cars up to
180 PS
RV depreciation
39%
Tyres
12%
Maintenance
6%
Finance
2%
Fuel
19%
others
2%
Insurance
16%
Tax
5%
Cars up to
130 PS
RV depreciation
43%
Tyres
5%
Maintenance
7%
Finance
2%
Fuel
20%
Source: Autoflotte Germany
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… and individual Depreciation has a significant impact on the
Leasing attractiveness …
... example
Ford Mondeo TD
New price (09/99)
€ 18'918.00
Compare options
€ 1'772.00
Total new price
€ 20'690.00
Example Germany
Leasing period
Leasing mileage
BMW 320d
€ 24'747.00
€ 2'836.00
€ 27'583.00
36
90'000
36
90'000
35.8
€ 7'400.00
56.7
€ 15'600.00
8
8
Leasing rate
€ 398,49
€ 358,30
Target rate NP
€ 298,91
€ 358,30
Difference
-€ 99,58
€ 0,00
RV trade in %
RV trade in €
Interest rate %
0,75:1
20,9 %
in
trade
in
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Agenda
Introduction EurotaxGlass`s
Motivation – why residual value and risk management ?
Two most common mistakes
Ideal approach and possibilities to influence residual value performance
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The most common two mistakes when setting contract residual
values
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
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Ignoring Actual Selling Prices Distribution
Example…
Contract: 3 years / 120.000 km
RV 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 € 8.000
FEATURING all of the options it sells around € 10.000 !
Potential Loss
Contract RV
Excl.
Options
Contract RV
Incl.
Options
Pricing Gap
€ 10.000
€ 8.000
Actual Selling Prices Span (Distribution)
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However the difference is no mistake nor on purpose – it is
simply unavoidable
External market benchmark
depends on :
Actual sales result depends on :
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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
…
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Match
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Missmatch
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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
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Market dynamics influencing residual values: Overview
1. Supply & demand
2. Distribution strategy,
marketing, pricing &
discount policy
8. Life cycle position
7. Fulfilment of
expectations
%
3. Configuration strategy &
policy, standard & optional
equipment
4. Segment allocation,
communication of benefits
6. Image
5. Design, communication
of values
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Backup
Evolution of residual values: Example UK
“small Diesel engine”
Audi A3
Mercedes Benz A class
VW Golf
Toyota Corolla
Audi A3
“large Diesel engine”
Mercedes Benz A class
VW Golf
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Backup
Evolution of residual values and national differences
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Backup
Correlation between product life cycle and residual value
Schwacke Automobil Index
Fahrzeugalter: 48 Monate, 60.000 km Laufleistung, Einkaufswerte
Peugeot 307 1.4 Presence/306 1.4 Prescene
Ford Focus 1.4 Trend/Escort 1.4 Fun/1.4 CL
VW Golf 1.4 Trendline/1.4 CL
Fiat Bravo 1.3 SX/1.4 16V SX
Renault Megane Classic 1.4 Expression/1.4 RT/1.6 RT/R 19 Bellevue 1.4 eco
Opel Astra 1.6 Comfort/1.4/1.4 GL
65
Launch
Golf IV
60
Launch
Ford Focus
55
50
45
40
35
30
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
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Backup
Influence of Image: Example Toyota Yaris / Starlet
ADAC AutoMarxX 2005
ADAC AutoMarxX 2002
TOP 3:
German premiums
Rising star:
Toyota
Toyota
Starlet
Launch
Toyota
Yaris
Improvement
Also impacts
RV´s
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Agenda
Introduction EurotaxGlass`s
Motivation – why residual value and risk management ?
Two most common mistakes
Ideal approach and possibilities to influence residual value performance
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Residual value and Risk Analysis – Ideal Approach
Data
Analysis
Market benchmark
(external source)
Hist. Benchmark
(external source)
Relation – own
sales to Benchmark
Adjust for
Individual
performance
Hist. sales results
(internal)
Adjust for excess
mileage rates, etc.
Contract values
Difference:
Contract values vs.
adjusted forecasts
RV risk exposure
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Example of Risk Analysis
FORD MONDEO 5DR HATCH 1.8i ZETEC, UK Market
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Influencing RV’s From the Leasing Companies’ Perspective
Influencing RVs …
… or Maximizing Re-Sale Value and Remarketing Performance ?
Not possible for all players
Very large volumes, nearly monopolistic situations
May have a certain cost and bear significant risks
Price
• Influencing the Market ?
Quantity
• Making the Most of the Market ?
Flexible, cost effective strategies
Process and performance based
Can be implemented at all levels of the business
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Influencing RV’s From the Leasing Companies’ Perspective
Maximizing Re-Sale Value and Remarketing Performance
Understand drivers of
used car selling prices
Identify drivers with
maximum impact
Select drivers t.b.
operated at sensible cost
Take action !
MARKET(S)
VEHICLES INDIVIDUAL FEATURES
SELLING PROCESSES
INVOLVE IN-HOUSE EXPERTS
USE BENCHMARK
ANALYTICS NEEDED
DO THE HOMEWORK
CREATE BUSINESS AWARENESS
ALIGN OBJECTIVES
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Influencing RV’s From the Leasing Companies’ Perspective
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
• …
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Influencing RV’s From the Leasing Companies’ Perspective
1. Understand ALL the drivers affecting used car selling prices
•…
• 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
•…
Re-Marketing Experience is a major asset… in
relation with adaquatemarket benchmarks
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Influencing RV’s From the Leasing Companies’ Perspective
Example – influence factor colour
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Influencing RV’s From the Leasing Companies’ Perspective
Example – options
Audi A4
Avant 1.9 TDI
BMW 320 D
touring
MB C220 CDI
Passat 1.9
TDI
Price new
28.730
29.650
31.505
26.375
Metallic
630
670
806
465
Lether
3.950
1.990
1.850
1.990
AC
serie
serie
1.636
serie
Sun roof
920
950
1.172
860
RV Basis
14.950
15.250
17.950
12.600
RV total
16.100
16.050
19.550
13.350
Already few extras can increase used car value strongly
Quelle: Eurotax Händlereinkaufswerte 36 monate, 120 tsd KM
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… But keep in mind - options have different depreciation
behaviour
Depreciation with diferent Desirabilties
RV in %
Depreciation, Basic car and desirability cluster 1
Depreciation options Desirability
cluster 7
36
Age in Months
Significant Differences in the RV dependent on desirability of options
Quelle: Eurotax
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Influencing RV’s From the Leasing Companies’ Perspective
2. Identify drivers that have the biggest impact on achieved prices
This depends very much on the business …
e.g. 1 -- Local market performance relative to neighbouring countries ?
Is acceptance of makes, models and equipments good ?
e.g. 2 – Optional equipments / required equipments ?
New car options watching lists / monitor evolution
e.g. 3 – Car concentration ?
What is the actual observed difference on a repeat basis ?
Information best tapped from the people actually selling cars…
But how to benchmark results ?
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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
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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 ?
SALES
SOURCING
• Make
• Model
• Fleet Concentration
• Required Equipment
• Exterior colour
• Interior colour and materials
• Buy-back negociations
• Make
• Model
• Age
• Mileage
• Equipment types and value
• Fleet run-off profiles
REMARKETING
• Vehicle re-conditioning
• Concentration / parking lot
• Sales Talent
• Moment of Sale
•…
Align Cross-Functional Objectives
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Influencing RV’s From the Leasing Companies’ Perspective
CONCLUSIONS
Business Critical Issues
Cross-functional Impacts
On-going Monitoring / Benchmarking Essential
Understand STATISTICAL DISTRIBUTIONS
Technology and novelty DO NOT generate SUSTAINABLE RV/SP
increases vs « natural » RV position; any advantage is TEMPORARY
Technically outdated assets LOSE GROUND vs up-to-date assets
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Thank you very much for your attention
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