Download Forecasts and Stress Scenarios of Used

Forecasts and Stress Scenarios of
Used-Car Prices
PEDRO CASTRO, SENIOR ECONOMIST, CREDIT ANALYTICS
TONY HUGHES, MANAGING DIRECTOR, HEAD OF SPECIALIZED MODELING
ZHOU LIU, DIRECTOR, CREDIT ANALYTICS
ECONOMIC OUTLOOK CONFERENCE, MAY 2015
Used-Car Price Landscape
» Kelley Blue Book and others provide current estimates of used-car
market value but they do not provide forecasts and scenarios.
» Many providers produce subjective assessments of future car values.
ALG combines model-driven projections with subjective overlay.
» Stress-testing has revealed a need for wholly model-driven
projections. Rigorous back-testing and complete documentation are
also mandatory.
» Many applications suggest that purely quantitative approaches
compete very favorably with subjective assessments. Models users’
own subjective overlay can be applied to a “clean canvas.”
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Introducing: AutoCycle™
Moody’s Analytics AutoCycle™ solution offers a quantitative, consistent,
and documented methodology for incorporating economic factors into car
price forecasts.
» Forecasts are driven by macro factors (supply and demand drivers of
vehicle value in different categories).
» Account for mileage and age; some variations in trim levels.
» We can project both existing and future model years (i.e. 2016 Jeeps).
Phase 1 Complete
Complete demo based on models developed for existing clients. These are portfolio-level models
geared to stress-testing lease portfolios of popular car brands.
Phase 2 Apr 2015
More general models developed to cover the full range of cars and trims at a highly granular level.
These models are also geared to portfolio-level analysis.
Phase 3 Jun 2015
VIN-level models, calibrated to the portfolio-level projections, that allow us to consistently capture
individual vehicle characteristics (such as extreme mileage or premium trim packages).
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Data and Structure
We use data from Auction.net in the U.S. These are wholesale auction
price outcomes observed over many years.
Data cover a very wide range of brands. Popular brands are better
populated (and this produces more accurate results) than secondary or
exotic brands.
We have done similar work in Canada and can do this on a custom basis.
$
Average price of
2014 Jeep Wrangler
S5
S4
BL
Time
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Vehicle Depreciation Curve
Auction prices for Toyota Corolla gas sedan, model 2000
12,000
10,000
8,000
6,000
4,000
2,000
0
Mar-00 May-02
Jul-04
Sep-06 Nov-08 Jan-11 Mar-13
Sources: NADA, Moody’s Analytics
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What Drives Used-Vehicle Price Change?
» Temporal and physical depreciation
» Newer models have better features that make older ones less
attractive.
» A more intensively driven car sells at a lower price, controlling for
other factors.
» Change in dynamics in used-car markets
» Markets are ever changing.
» Prices are a function of supply and demand.
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What Explains Dynamics Change in Used-Car Markets?
» Auto markets condition
» Consumer demand condition
» Interest rates
» Gas prices
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Potential Macroeconomic Drivers
Bank Prime Rate
Debt Service Burden
Interest Rate for New-Car Loans
Consumer Confidence Index
CPI New Cars
Total Employment
CPI Used Vehicles
Labor Force Participation Rate
CPI New Vehicles
Total Population
Manheim Used Vehicle Value Index
Disposable Personal Income
Vehicle Sales
Unemployment Rate
Auto Inventory-to-Sales Ratio
Brent Crude Oil Futures Prices
Stock of Cars in the U.S.
Total Motor Fuel Usage on Highways
New Vehicle Registrations
CPI Gasoline
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Prices Respond to Environment Differently
Cars are assigned to different segments and each segment will have
different sensitivity to macroeconomic environments.
Compact
Midsize Utility
Sport
Compact Utility
Near Luxury
Midsize Van
Luxury Utility
Subcompact
Luxury Midsize
Large Pickup
Luxury
Midsize Pickup
Midsize
Large Van
Large
Large SUV
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Dataset
Data from National Automobile Dealers’ Association (NADA)
Cover 81 million transactions
Transaction months: Jan 1997 to Dec 2014
Model year: 1997 to 2014
This is not a transaction-level dataset: 2.2 million observations
Each observation aggregates between 2 and 9,200 transactions
» Mean # of transactions per observation = 47; median = 15
» Std. dev. = 134; 5th percentile = 2; 95th percentile = 176
Transactions aggregated by vehicles/model-year
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Dataset
Unit of analysis: vehicle – model year
Vehicles are defined by unique combinations of:
» Forty different Makes (e.g.: Toyota, GM)
» Model (e.g.: Corolla, Impala)
» Six different fuel types (gas, hybrid, diesel, natural gas, ethanol,
electric)
» Eighteen different body types (hatchback, sedan, convertible, etc.)
We observe transactions for 1196 different vehicles
» Honda Accord Gas Sedan, Ford Focus Gas Hatchback
What else do we observe?
» MSRP Values
» Average price of underlying transactions
» Average mileage of vehicles, etc.
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Sixteen Segments
Segments Play a key role in identifying common trends across vehicles
Heterogeneity of segment sensitivity to macro drivers affects vehicles
relative prices
Compact
Luxury Utility
Midsize
Compact Utility
Sport
Luxury Midsize
Large
Subcompact
Near Luxury
Luxury
Midsize Utility
Large Pickup
Midsize Pickup
Large Van
Large SUV
Midsize Van
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Forecast: Price to MSRP
Ford Taurus gas sedan 2001
0.7
Spliced
Fitted
0.6
0.5
0.4
0.3
0.2
0.1
0.0
Jan-01
Jan-03
Jan-05
Jan-07
Jan-09
Jan-11
Jan-13
Source: Moody’s Analytics
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Forecast: Price to MSRP
Ford Focus gas sedan 2006
0.8
Spliced - Baseline
0.7
Fitted - S4 Stress
0.6
0.5
0.4
0.3
0.2
0.1
0.0
Jan-06
Jan-08
Jan-10
Jan-12
Jan-14
Jan-16
Jan-18
Source: Moody’s Analytics
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Forecast: Price to MSRP
Ford Explorer gas utility 2015
1.2
Baseline
S4 Stress
S8 Low oil price
1.0
0.8
0.6
0.4
Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18
Sources: Moody’s Analytics
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Forecast: Price to MSRP
Toyota Camry gas sedan 2015
1.0
Baseline
S4 Stress
S8 Low oil price
0.9
0.8
0.7
0.6
0.5
0.4
Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18
Source: Moody’s Analytics
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Forecast: Price to MSRP Ratio
Honda Civic gas sedan 5 yrs old
0.60
Spliced - Baseline
S4 Stress
Fitted - S8 low oil price
0.55
0.50
0.45
0.40
0.35
0.30
Jan-07
Jan-09
Jan-11
Jan-13
Jan-15
Jan-17
Source: Moody’s Analytics
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Forecast: Price to MSRP Ratio
Audi A4 gas sedan 4 yrs old
0.65
Baseline - Spliced
S4 Stress
S8 Low oil prices - fitted
0.60
0.55
0.50
0.45
0.40
0.35
Jan-07
Jan-09
Jan-11
Jan-13
Jan-15
Jan-17
Source: Moody’s Analytics
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Forecast: Price to MSRP Ratio
Toyota Camry gas sedan 2 to 7 yrs old – spliced series
0.9
Age 2
Age 3
Age 4
Age 5
Age 6
Age 7
0.8
0.7
0.6
0.5
0.4
0.3
0.2
Jan-05
Jan-07
Jan-09
Jan-11
Jan-13
Jan-15
Jan-17
Source: Moody’s Analytics
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