Forecasts and Stress Scenarios of Used-Car Prices - PEDRO CASTRO, SENIOR ECONOMIST, CREDIT ANALYTICS TONY HUGHES, MANAGING DIRECTOR, HEAD OF ...
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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.”
2Introducing: 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).
3Data 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
4Vehicle 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
5What 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.
6What Explains Dynamics Change in Used-Car Markets?
» Auto markets condition
» Consumer demand condition
» Interest rates
» Gas prices
7Potential 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
8Prices 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
9Dataset
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
10Dataset
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.
11Sixteen 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
12Forecast: 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
13Forecast: Price to MSRP
Ford Focus gas sedan 2006
0.8
0.7 Spliced - Baseline 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
14Forecast: 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
15Forecast: 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
16Forecast: 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
17Forecast: 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
18Forecast: 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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