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YOY% DeflationWebinars

Dylan Setterfield05/11/13

Depreciation vs. Deflation

YO

Y%

Deflation (YOY%)

• Change over time in benchmark age/mileage.• Always based on values at the SAME a/m.• Gives a real sense of used car market changes.• Can be modelled statistically.

CAP ID 38015BMW 1 Series 120D SE 2dr Coupe

4000

6000

8000

10000

12000

14000

16000

18000

20000

0 12 18 24 30 36 42 48 54 60

Black Book Actual (0757 @20k pa)

Monitor Forecast Nov-07

£

Depreciation

• Aging over time of an individual vehicle• Gradual increase in age & mileage.• Difficult to see used car market changes.• Simplest method to systemise values for all age

& mileage combinations.

YOY% Deflation Calculation

Example – Used Value at 36/60What is it worth now?

CAP ID 38959Ford Focus 1.8 TDCi Zetec 5dr H/B

What was it worth a year ago?

YOY% Deflation Calculation

What is the YOY% deflation?

YOY% Deflation Calculation

Value today (Nov-13 1060 @ 60k)

Value 1 year ago (Nov-12 0959 @ 60k)

Change (£)

YOY% Change

5925

6200

-275

-4.4%*

* -275 / 6200 = -0.044

YOY% Deflation Indices

• Data for all CAP IDs captured – 36/60 value in each available month• 36/60 value compared to previous month to give ID MOM% movement• Total MOM% weighted according to registrations (from plate period)• Index created from start point• First YOY% created after 12 months

Example – Lower Medium 36/60 Diesel

Some Other Market Metrics

% List Price• An entirely artificial construction • Little or no relevance for analysis of used values• Purely an analysis transformation tool

Disposals tracking• Inherent variation from all sources• Very difficult to ascertain subtle market changes• Heavily impacted by model changes

Unweighted indices• Not giving a true picture of the market

Regression Modelling

Combined with editorial expertise for forecast generation

Currently 71 input variables feeding into 9 ‘buckets’

GDP Inflation Unemployment Interest Rates Exchange Rates Total New Car Regns

Sector New Car Regns Fleet Regns Fuel Prices

‘Regression Engine’ runs combinations of factors to determine best historical relationships

Used Car market segmented by age & sector & fuel type

Upper Medium Diesel – 36/60

Good model, >85% of variation explained

YOY% Model vs. Actual

YOY%

Forecast Context

• Additional overlays & expert opinion applied• Mileage curves applied to fill vertical values• Seasonality applied to fill between annual values• Walk-up relationships populate full model range

10,00020,00030,00040,00050,00060,00070,00080,00090,000

100,000

24 483612 60 Example – RV 12/20

CAP ID 40936Vauxhall Insignia 2.0 CDTi Exclusiv 5dr H/B

Take current Black Book 1262 @20kYOY% 1,D,UM

Base forecast 12/20

Depreciation curve formed by applying future market forecast to current Black Book

10,200-10%9,175

Enhanced product to include full transparency of assumptions and will share intelligence - commentary to accompany all changes and new

additions.

Benefits

• Combines statistical rigour with expert opinion & market intelligence

• Rooted in genuine Black Book value wherever possible

• Enables used & short term forecasts

• Productivity gains from Live Database – new models delivery quicker

• Provides a true independent benchmark residual value

• Clarity on end to end forecast methodology and rationale

• Enables breakdown of differences between Black Book and previous forecasts

• Creates a hub for future product development

Gold Book iQ – Black Book Values

Gold Book iQ – Deflation Profile

12/20 24/40 36/60 48/80 60/100

Year 1 -4.1% -3.9% -5.6% -5.2% -4.1%

Year 2 -3.5% -4.9% -3.9% -4.5%

Year 3 -5.7% -6.4% -7.0%

Year 4 -5.7% -5.1%

Year 5 -5.5%

Total -4.1% -7.3% -15.3% -19.6% -23.6%

Gold Book – Used Vehicle Forecasts

Calculation is based on current used value of vehicle at final age by year

• Future deflation applied as per Gold Book new car forecast• Model Life Overlay applied according to age of specific vehicle• Editorial adjustment applied as per Gold Book new car forecast

Forecasts calculated for intermediate plates

Mileage curves applied – 5 defined bandings per sector

Gold Book – Used Vehicle Example

Honda Accord Diesel Saloon 2.2i-DTEC ES 4drCAP ID 39851

Required forecast is for an additional 24 months on a 1060 plate at 90,000 miles

Final vehicle age at end of forecast period is 5 years

Current (Nov-13) CAP Clean value for an 0858 plate vehicle at 100k is £5,900

Apply first 2 years’ deflation for a 5 year old Upper Medium Diesel vehicle

Current master vehicle, so retain both ML and Editorial overlays

This gives expected future value for the used vehicle at standard mileage

Adjust according to mileage curve for required mileage (5 values tabulated – standard for this sector is 20k per year)

Monitor Sector Reforecasts

• ‘Half-Way House’ between traditional Monitor forecast and Gold Book methodology

• CAP Forecasting Team thinking in terms of new methodology

• Removal of previous Monitor macroeconomic weightings – generally increases for larger vehicles, flat or decreases for smaller vehicle sectors

• Attempt to minimise impact of switch to Gold Book

• Review of vehicles which had not been reforecasted for some time

• Updated analysis of relationships between key models in sectors

• Prompting better quality of conversation with manufacturers (eventually)

Gold Book Timetable

• Internal system now operational – first sector forecasts being generated

• As vehicle sector results are passed through QC, movements will be communicated to all customers

• Full Gold Book forecasts to be deadlined at end of November for December product

• No change to technical content of CAP products

• Gold Book iQ User Acceptance Testing during November

• Gold Book iQ to be released in the first week of December

• New vehicles to be published directly into product from January 2014