In previous posts we’ve observed how the vehicle market is much different in 2017 than it was 3 short years ago. Oversupply of new and ‘almost new’ units, maxed out consumer demand and the volume of older vehicles is at historic levels. So what can we do with this information and the bleak prospects that it presents? How do we plan for future success in this new normal? At ARS these question are addressed every day.
At ARS we preach a data led approach to understanding vehicle mix. But before we dive into the data we need to look at our own biases first. Specifically:
- Stop looking globally at recoveries and
- Avoid the temptation of individual recovery stories or singular success.
We need to look at our unit volume as commodities. Our goal is to understand the unique demand appetites for these assets and the forces influencing their demand.
We can’t build actionable intelligence without first breaking down the whole. Looking at the whole asset pool creates a blind to important behaviors. Useful breakdown allows real time decision making and opportunity hunting. It focuses our attention on change and creates predictive tools for maximizing returns.
“To be useful, segments must be measurable, substantial, accessible and differentiable and accountable.” -Philip Kotler
So, how do you usefully break down the whole of your vehicle assets? First, we work to construct a distributed model of volume. The methodology needs to be useful throughout the asset’s portfolio use and depreciation. We rely on a valuation model using ACV values. ACV (Actual Cash Value) is most commonly delivered by consumer price indexes (Kelley Blue Book, NADA, etc), however, these values have inherent weaknesses including a difficulty to see through age and condition of units. Also, in our experience ACV values become increasingly unreliable as the vehicle approaches End of Life. It’s important to note that we’re not using these as dollar valuation tools, instead we’re using the valuation as an index point to create our distributed model.
At ARS we use a method with of our clients of examining vehicle asset values by TRANCHE
TRANCHE: part or a unit of a larger unit or asset pool
Tranching the data allows us to again focus on sales behaviors that influence returns. For example, a typical client portfolio might tranche as below.