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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 The leading provider
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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 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
EurotaxGlass`s – Coverage New subsidiaries + Rumania + Sweden + Turkey
Eurotax Print Valuations • Vehicle specification (make, model and equipment) • New car prices and history including optional equipment • Current residual value (trade-in and retail) • 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 Eurotax Autowert Eurotax Repair Estimate(IKE32) • 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 Eurotax Forecast Eurotax Claims Control • 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 Comprehensive range of products and solutions … Product selection Product group overview Specification and valuation Repair and calculation Service and maintenance Advertising
Leasing: Eurotax Supports the full value chain … … and all supported by a common, international and unique code Major leasing 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 Repair calculation information Repair calculation information Service & Maintenance data Service & Maintenance data Light damage estimation Service & Maintenance data Total cost of ownership Total cost of ownership Forecast Forecast Remarketing benchmark information Current Core products Further products to be launched in Rumania later „The one-stop shop“
Agenda • Introduction EurotaxGlass`s • Motivation – why residual value and risk management ? • Two most common mistakes • Ideal approach and possibilities to influence residual value performance
Depreciation is the biggest cost block during owning a car … Example German market … Cars up to 180 PS Cars up to 130 PS Source: Autoflotte Germany
20,9 % in trade in 0,75:1 … and individual Depreciation has a significant impact on the Leasing attractiveness … ... example
Agenda • Introduction EurotaxGlass`s • Motivation – why residual value and risk management ? • Two most common mistakes • Ideal approach and possibilities to influence residual value performance
The most common two mistakes when setting contract residual values • Relying on Fair Market Values While Not Analyzing Actual Selling Prices • Relying on Selling Performance While Not Analyzing Market Dynamics • THE BEST PREDICTIVE APPROACH COMBINES • USED CAR MARKET UNDERSTANDING • OWN RE-MARKETING KNOWLEDGE
Ignoring Actual Selling Prices DistributionExample… 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 ! Pricing Gap Potential Loss Contract RV Excl. Options Contract RV Incl. Options € 10.000 € 8.000 Actual Selling Prices Span (Distribution)
Match However the difference is no mistake nor on purpose – it is simply unavoidable Actual sales result depends on : External market benchmark 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 • … • 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 Miss- match
Market dynamics influencing residual values: Overview 1.Supply & demand 8. Life cycle position 2. Distribution strategy, marketing, pricing & discount policy % 3. Configuration strategy & policy, standard & optional equipment 7. Fulfilment of expectations 4. Segment allocation, communication of benefits 6. Image 5. Design, communication of values
Evolution of residual values and national differences Backup
Correlation between product life cycle and residual value Backup LaunchGolf IV LaunchFord Focus
Influence of Image: Example Toyota Yaris / Starlet Backup ADAC AutoMarxX 2005 ADAC AutoMarxX 2002 TOP 3:German premiums Rising star:Toyota LaunchToyota Yaris Toyota Starlet Improvement Also impacts RV´s
Agenda • Introduction EurotaxGlass`s • Motivation – why residual value and risk management ? • Two most common mistakes • Ideal approach and possibilities to influence residual value performance
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 Adjust for excess mileage rates, etc. Hist. sales results (internal) Contract values Difference: Contract values vs. adjusted forecasts RV risk exposure
Example of Risk Analysis • FORD MONDEO 5DR HATCH 1.8i ZETEC, UK Market
Supply Demand Price Quantity 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 players • Very large volumes, nearly monopolistic situations • May have a certain cost and bear significant risks • Making the Most of the Market ? • Flexible, cost effective strategies • Process and performance based • Can be implemented at all levels of the business
Influencing RV’s From the Leasing Companies’ Perspective Maximizing Re-Sale Value and Remarketing Performance Understand drivers of used car selling prices MARKET(S) VEHICLES INDIVIDUAL FEATURES SELLING PROCESSES Identify drivers with maximum impact INVOLVE IN-HOUSE EXPERTS USE BENCHMARK Select drivers t.b. operated at sensible cost ANALYTICS NEEDED DO THE HOMEWORK Take action ! CREATE BUSINESS AWARENESS ALIGN OBJECTIVES
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 • …
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
Influencing RV’s From the Leasing Companies’ Perspective Example – influence factor colour
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
… But keep in mind - options have different depreciation behaviour Depreciation with diferent Desirabilties Depreciation, Basic car and desirability cluster 1 RV in % Depreciation options Desirability cluster 7 36 Age in Months Significant Differences in the RV dependent on desirability of options Quelle: Eurotax
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
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 ? REMARKETING 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 • Vehicle re-conditioning • Concentration / parking lot • Sales Talent • Moment of Sale • … Align Cross-Functional Objectives