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 11/01/2017 2 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 11/01/2017 3 EurotaxGlass`s – Coverage New subsidiaries + Rumania + Sweden + Turkey 11/01/2017 4 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 11/01/2017 5 ... For a wide range of customers 11/01/2017 6 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“ 11/01/2017 7 Agenda Introduction EurotaxGlass`s Motivation – why residual value and risk management ? Two most common mistakes Ideal approach and possibilities to influence residual value performance 11/01/2017 8 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 11/01/2017 9 … 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 11/01/2017 10 Agenda Introduction EurotaxGlass`s Motivation – why residual value and risk management ? Two most common mistakes Ideal approach and possibilities to influence residual value performance 11/01/2017 11 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 11/01/2017 12 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) 11/01/2017 13 However the difference is no mistake nor on purpose – it is simply unavoidable External market benchmark depends on : Actual sales result depends on : 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 … Match Missmatch 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 11/01/2017 14 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 11/01/2017 15 Backup Evolution of residual values and national differences 11/01/2017 16 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 11/01/2017 17 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 11/01/2017 18 Agenda Introduction EurotaxGlass`s Motivation – why residual value and risk management ? Two most common mistakes Ideal approach and possibilities to influence residual value performance 11/01/2017 19 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 11/01/2017 20 Example of Risk Analysis FORD MONDEO 5DR HATCH 1.8i ZETEC, UK Market 11/01/2017 21 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 11/01/2017 22 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 11/01/2017 23 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 • … 11/01/2017 24 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 11/01/2017 25 Influencing RV’s From the Leasing Companies’ Perspective Example – influence factor colour 11/01/2017 26 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 11/01/2017 27 … 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 11/01/2017 28 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 11/01/2017 29 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 11/01/2017 30 Thank you very much for your attention
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