Redesigns and Residuals Quantifying the Impact of Vehicle Redesigns on Residual Values Conference of Automotive Remarketing 2013
Session Topics OVERVIEW SAAR Unemployment & Consumer Confidence Gas Prices Auction Volume REDESIGNS Overview & Methodology Horsepower Fuel Efficiency List Price Rental & Lease Volume Styling Equipment Conclusions 1
Daily Selling Rate (fleet+retail) Kelley Blue Book Projects 2013 SAAR at 15.3M 65,000 60,000 55,000 50,000 45,000 40,000 35,000 30,000 2007 = 16.0 million 2013 = 15.3 million (est.) 2012 = 14.5 million 25,000 20,000 2007 2012 2013 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Kelley Blue Book Automotive Insights 2
New-Vehicle Sales (millions) Trends Suggest Lower Unemployment Needed 18 17 16 2013 15 14 2012 New Trend Line 13 2011 12 11 Historical Trend Line 2009 2010 10 4 5 6 7 8 9 10 Average Annual Unemployment Rate) Unemployment from Bureau of Labor Statistics & Sales from Kelley Blue Book Automotive Insights 3
New-Vehicle Sales (millions)... And Higher Consumer Confidence Required 18 17 16 2013 New Trend Line Historical Trend Line 15 14 2012 13 2011 12 2010 11 2009 10 40 50 60 70 80 90 100 110 120 130 140 Conference Board Consumer Confidence Index (1985=100) Consumer Confidence from The Conference Board & Sales from Kelley Blue Book Automotive Insights 4
Average Annual Fuel Price Projected by EIA Fuel Prices Expected to Decline Long Term $4.00 $3.80 $3.60 $3.40 $3.63 $3.55 $3.39 $3.20 $3.00 $2.80 $2.60 $2.40 $2.20 $2.00 2012 2013 2014 Source: Energy Information Administration 5
IEA s World Energy Outlook 2012 The global energy map is changing, led by new extraction technologies in the U.S. Global energy demand is expected to grow by a third by 2035, with 60% of the increase coming from China, India and the Middle East Demand for oil in the U.S. is expected to decline in the coming years as efficiency gains are realized Efficiency initiatives will spread globally mitigating some of the growing energy demand Trade-offs between efficiencies, national security, economic growth and environmental concerns add challenges to any forecast Source: International Energy Agency, World Energy Outlook 2012 6
Global Energy Consumption Doubled in 40 Years [Millions of Tons of Oil Equivalent] Avg. 1.69% Increase Per Year ( 73 10) 3.44%/yr. 1.26%/yr. 7 Source: International Energy Agency, Key World Energy Statistics 2012
Increased Consumption from China & Asia Avg. 1.69% Increase Per Year ( 73 10) Avg. 3.74% Increase Per Year ( 73 10) 8 Source: International Energy Agency, Key World Energy Statistics 2012
Wide Swings Exist in Global Energy Prices 9 Source: International Energy Agency, Key World Energy Statistics 2012
Auction Volume is Projected to Rise in 2013 Source: Kelley Blue Book Internal Analysis 10
Session Topics OVERVIEW SAAR Unemployment & Consumer Confidence Gas Prices Auction Volume REDESIGNS Overview & Methodology Horsepower Fuel Efficiency List Price Rental & Lease Volume Styling Equipment Conclusions 11
Overview of Analysis All vehicle redesigns since the 2007 model year were included in the study Refreshes and facelifts were not included Kelley Blue Book s auction transaction database was utilized to power statistical models that yielded the following insights Normalize vehicle sales for age and mileage Major elements that affect residual values were analyzed 12
Change in 36-Month Residual Value Improved Horsepower Increases Residual Values 60% 50% 40% A 10% Increase in Horsepower Results in a 3.0% Increase in Residual Value 30% 20% 10% 0% -60% -40% -20% 0% 20% 40% 60% 80% 100% -10% -20% -30% -40% 13
2010 Buick LaCrosse Had a 40% Improvement in HP 2010 LaCrosse 280 hp 2009 LaCrosse 200 hp 14
2011 VW Jetta Had a 32% Reduction in HP 2011 Jetta 115 hp 2010 Jetta 170 hp 15
Change in 36-Month Residual Value Increasing Fuel Efficiency Helps Residual Values 60% 50% 40% A 10% Improvement in Fuel Efficiency Results in a 3.9% Increase in Residual Value 30% 20% 10% 0% -100% -80% -60% -40% -20% 0% 20% 40% 60% 80% 100% -10% -20% -30% -40% 16
2010 Chevy Equinox Increased Fuel Efficiency By 30% 2010 Equinox 26 mpg 2009 Equinox 20 mpg 17
2009 Pontiac Vibe Lost 3% in Fuel Efficiency 2009 Vibe 28 mpg 2008 Vibe 29 mpg 18
Change in 36-Mon. Resid. Value Higher List Prices Hurt Residual Values 60% 50% 40% A 10% Increase in List Price Results in a 3.9% Decrease in Residual Value 30% 20% 10% 0% -60% -40% -20% 0% 20% 40% 60% 80% 100% -10% -20% -30% -40% 19
2011 Toyota Sienna Had an 11% Increase in List Price 2011 Sienna $29,700 2010 Sienna $26,875 20
2010 Cadillac SRX Had a 28% Reduction in List Price 2010 SRX $34,655 2009 SRX $48,235 21
Change in 36-Month Residual Value Higher Rental Volume Hurts Residual Values 60% 50% 40% A 10% Increase in Rental Volume Penetration Results in a 0.4% Decrease in Residual Value 30% 20% 10% 0% -100% -80% -60% -40% -20% 0% 20% 40% 60% 80% 100% -10% -20% -30% -40% 22
2011 Kia Optima Had an 80% Drop in Rental Penetration 2011 Optima 11% 2010 Optima 54% 23
2012 Ford Focus Saw a 71% Rise in Rental Penetration 2012 Focus 24% 2011 Focus 14% 24
Change in 36-Month Residual Value Lease Volume Also Hurts Residual Values 60% 50% 40% A 10% Increase in Lease Volume Penetration Results in a 0.4% Decrease in Residual Value 30% 20% 10% 0% -100% -80% -60% -40% -20% 0% 20% 40% 60% 80% 100% -10% -20% -30% -40% 25
2010 Mercedes-Benz E-Class Had a 23% Drop in Lease Penetration 2010 E-Class 47% 2009 E-Class 61% 26
2010 Hyundai Tucson Leases Went From 0% To 9% 2010 Tucson 9% 2009 Tucson 0% 27
Change in 36-Month Residual Value Better Exterior Styling Can Raise Residual Values 60% 50% 40% 30% An Improvement of 1 Styling Rating Point Results in a 1.5 Point Increase in Residual Value 20% 10% 0% -1.50-1.00-0.50 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50-10% -20% -30% -40% 28
2011 Hyundai Sonata s Styling is Much Improved 2010 Model Year 2011 Model Year Here, finally, is the Hyundai that really is going to stop people in their tracks. Car and Driver (Sonata s) style makes a bold statement. AutoGuide 29
2011 Hyundai Sonata Rose 2 Points in Styling Scoring 2011 Sonata 5 2010 Sonata 3 30
2012 Honda Civic s Styling Was Disappointing (Honda s) design department has reverted to form: no risks, no distinction. Car and Driver... design is clunky. The Truth About Cars Nothing about the Civic is offensive, but little is especially compelling, either. Leftlane News 2011 Model Year 2012 Model Year 31
2012 Honda Civic Lost 1 Rating Point in Styling Scoring 2012 Civic 2 2011 Civic 3 32
Equipment While significant equipment changes on a redesigned vehicle can help raise residual values, there were insufficient instances where that occurred in the study sample Regression analysis on the changes in equipment resulted in imperceptible changes in residual values This result was likely due to the minor equipment changes implemented in the redesigns in the study (examples below) Antenna integrated into glass Trip computer Tire pressure monitor Dual chrome exhaust 33
Summary of Findings: Impact of a 10% Increase (R 2 = 0.5) A 10% Increase Leads to Higher/(Lower) Residual Values at 36 Months Horsepower 3.0% Fuel Efficiency 3.9% List Price (3.9%) Rental Penetration (0.4%) Lease Penetration (0.4%) Styling (Rating Pts.) 1.5% 34
Final Thoughts A coordinated plan of improvements in a redesigned model can significantly improve a vehicle s residual values Horsepower and fuel-efficiency improvements can result from improved engines Price reductions can be equally effective at raising residual values While more subjective, styling improvements can yield large gains in residual values Post-launch marketing decisions related to incentives, pricing or volume can adversely impact redesign residual value gains 35
Thank You Eric Ibara Director, Residual Consulting Kelley Blue Book eibara@kbb.com