NADA Used Car Guide. Valuation Methodology

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1 NADA Used Car Guide Valuation Methodology

2 Valua%on Process NADA UCG employs quan%ta%ve and qualita%ve analysis to develop used vehicle values based on data DATA Wholesale, retail and dealer asking price data, along with important market data, is processed, cleansed and loaded into a data warehouse FORECAST A sta%s%cal model generates used vehicle prices forecasts using current sales and market data; a deprecia%on forecast is combined with other variables to create used vehicle value es%mates VEHICLE ANALYSIS Analysts review forecasted values alongside sales data to determine market prices of each vehicle; analysis is performed using a variety of specialized tools and reports, along with market exper%se REVIEW Analysts closely examine vehicle and op%on values and regional varia%ons to ensure consistency and validity before finalizing produc%on ACCURACY Both EVALUATION model-generated and vehicle analyst forecasts are measured against actual transac%on data; low accuracy cases are examined and addressed as necessary along the valua%on chain

3 2013 Honda CR-V LX 4WD $19, Honda CR-V LX 4WD $17,000 $15,000 $13,000 $11,000 $9,000 $7,000 Wholesale Prices (AuctionNet) NADA Trade-In Clean - $15,350 Average - 15,050 Rough - $13,225 $5, ,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000

4 Forecast NADA utilizes trend data to smooth out volatility and develop price forecasts [Expected Value (E) Expected Value (E-9wk)] x Relationship Coefficient = Forecast Adjustment NADA starts with a simple forecast for deprecia%on then overlays individual adjustments to the expected value to determine the published guidebook value. The example shows the adjustment for fuel prices added to the simple deprecia%on forecast. NADA Seasonal Adjustment A primary driver of used price movement is seasonality. This component is one of the most influen%al drivers when applying a short-term forecast especially during market turns in Spring and Fall. Forecast variables include: Seasonality Vehicle Deprecia%on Used Supply Economic Condi%ons Wealth Indicators Demand New Vehicle Price Consumer Preferences Gas Prices

5 2013 Honda CR-V LX 4WD $25, Honda CR-V LX 4WD $23,000 $21,000 $19,000 $17,000 $15,000 $13,000 $11,000 $9,000 Wholesale Prices (AuctionNet) Asking Prices NADA Retail - $18,275 $7,000 Retail Prices (PIN) NADA Trade-In - $15,050 NADA Value $5, ,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90, ,000

6 Other Examples 2009 Ford F150 ($13,475 w/ 88,780 miles) Shared VIN pattern makes data difficult to interpret ($6,400 à $20,200) Small Sample o Analyze trend data and increase time period to improve sample o o Use other F150 models as proxies. XLT has a 5.4L, 4.6L 3 valve V8s, and a 4.6L 2 valve V8s. Compare to the Chevy, Dodge, Nissan, and Titan Utilize historical relationships between models and verify 2009 has similar spread Toyota Camry ($6,550 w/74,060 miles) Value is set directly from statistical analysis Older vehicle uses larger sample ~950 vehicles Shared VIN - Use NADA trim decode information to identify proper trim level Large sample enables more sophisticated analysis of price/mileage relationship QA can be done at mileage band level 2014 Chrysler 200 ($11,025 w/15,968 miles) Relatively small sample ~90 units with large price range ($5,000 - $11,000) Low mileage target relative to the sample requires large mileage adjustment High percentage volume of fleet/lease volume with ~20% of the volume well below the mean. NADA UCG s weighting technique is adept at handling this type of situation Large retail sample enables analysis between different channels 2002 Saturn SL NADA older car values utilize analysis on terminal value of vehicles. This is the point where a vehicle essentially stops depreciating. When considering that we attempt to create an average value we use this terminal value estimate for our trade-in value. Since we are targeting average condition we heavily weight retail transaction data as an input to the wholesale calculation, with the assumption that may vehicles wholesaled at this age are in rough condition. In the case of this vehicle retail transaction data suggests a value of between $1,800 - $3,300.

7 Valuation Methodology Sean Foyil Manager, Vehicle Valuation Operations J U N E,

8 Valuation Process Flow - From Data to Values Internal & External Source Data Base Vehicle Value Forecasts Valuations Analysts Review & Publish Weekly Values Data Cleansing & Enhancement Statistical Forecast Models Mileage, Condition, Region, & Equipment Adjustments Fair Market Range KBB Fair Purchase Price Advisor

9 Comprehensive View of the Market Data Retail New Car Instant Cash Offer Vehicle Appraisals Vehicle Registrations Retail Used Car 250+ Data Sources 100+ Terabytes Vehicle Listings 2.9 Trillion Data Points Consumer Behavior Wholesale Provide thoughtful transparency Auction Base Vehicle Data Macro Economic Factors / C&I

10 Balanced Approach: Art & Science Qualitative Quantitative Vehicle Valuations Team Team of Industry Analysts Review Forecast Output Set Final Vehicle Values Team of Field Analysts Inspect Auction Vehicles Provide Market Insights Art Science Balanced Approach Team of Statisticians Develop Models Produce Forecasts Team of Data Technicians Map data to KBB Normalize Transactions Predictive Analytics Team

11 Comprehensive Values Portfolio Honda Accord LX New & Used Values Vehicle Model Instant Cash Offer Trade-In Value AucCon Value* Private Party Value Lending Value* Used Car Fair Purchase Price Suggested Retail CerCfied Pre- Owned Price New Car Fair Purchase Price Residual Value 36 mos. 5-Year Cost to Own 2011 Honda Accord LX 2014 Honda Accord LX $11,050 $11,389 $12,339 $12,770 $13,639 $14,320 $15,020 $15,445 * Industry values not disclosed to consumers $21,357 $13,892 $34,397

12 Always Evolving 2015 Valuation Enhancements 100+ Distinct Regions Color Valuation Adjustments Model Specific Mileage Impact Model Specific Condition Effect

13 Key Takeaways Data drives vehicle valuation methodology Balanced approach art & science Values updated weekly, daily if necessary Full suite of value types covering entire market Continuous improvements region, color, mileage, condition 13

14 Valuation Deep Dive 2007 Toyota Camry 2013 Honda CR-V

15 2007 Toyota Camry Year Miles MMR NADA Kelley BBK ,060 $6,350 $6,550 $6,706 $5,175

16 Auction Transactions Drive KBB Auction Value 3,624 Total Transactions Transaction Data Drives Valuation Process 16

17 Retail Listings Drive KBB Suggested Retail Value 4,628 Total Listings Transaction Data Drives Valuation Process 17

18 Retail Transactions Drive KBB Used Car Fair Purchase Price 3,377 Total Transactions Transaction Data Drives Valuation Process 18

19 Comprehensive Market Coverage 11,629 Total Count Auction Transactions, Retail Listings, Retail Transactions 19

20 Typical Mileage by Model 3,624 Total Transactions Actual Mileage Data Drives Typical Mileage 20

21 2013 Honda CR-V Year Miles MMR NADA Kelley BBK ,452 $14,350 $15,050 $14,850 $15,875

22 Auction Transactions Drive KBB Auction Value 1,863 Total Transactions Transaction Data Drives Valuation Process 22

23 Retail Listings Drive KBB Suggested Retail Value 5,825 Total Listings Transaction Data Drives Valuation Process 23

24 Retail Transactions Drive KBB Used Car Fair Purchase Price 7,600 Total Transactions Transaction Data Drives Valuation Process 24

25 Comprehensive Market Coverage 15,288 Total Count Auction Transactions, Retail Listings, Retail Transactions 25

26 Typical Mileage by Model 1,863 Total Transactions Actual Mileage Data Drives Typical Mileage 26

27 Additional Vehicles

28 2009 Ford F150 XLT VIN: 1FTPW12VX9KA89251 Auction Transactions Drive KBB Auction Value 28

29 2014 Chrysler 200 LX Sedan Auction Transactions Drive KBB Auction Value 29

30 2002 Saturn S-Series SL2 Sedan Auction Transactions Drive KBB Auction Value 30

31 VEHICLE VALUATION MMR NADA Kelley - BBK

32 2013 Honda CR-V Year Miles MMR NADA Kelley BBK ,452 14,350 15,050 14,850 15,875

33 2009 Ford Truck F150 Year Miles MMR NADA Kelley BBK ,780 11,250 13,475 13,936 13,150

34 2007 Toyota Camry Year Miles MMR NADA Kelley BBK ,060 6,350 6,550 6,706 5,175

35 2014 Chrysler 200 Year Miles MMR NADA Kelley BBK ,968 10,800 11,025 10,544 10,975

36 2002 Saturn Year Miles MMR NADA Kelley BBK , ,000 1,