When it came to predicting future residual values (RV) CAP has had few, if any, rivals in the UK. Its data has become a benchmark by which future prices are predicted, and the prices that are eventually realised are measured. This near monopoly on RV forecasting has just come under pressure from a recently launched product from trade valuations company Glass’s, which aims to deliver a more accurate and transparent model to the market
Glass’s, part of the EurotaxGlass’s group and with over 80 years of providing current prices to the motor trade, has launched GlassForecast to rival the current products of CAP. Speaking to Motor Finance, Glass’s said it launched GlassForecast in response to demand from the industry.
Dan Parnell, head of fleet and finance at Glass’s said the industry had been "crying out" for Glass’s to provide an opinion on residual values, and to provide more competition in the marketplace.
Parnell referred to the comments of Matt Sutherland, chief operating officer of Alphabet, who called GlassForecast a "very welcome addition to the marketplace".
Although Glass’s previously offered a limited forecasting model, it had not provided one with a comprehensive methodology similar in scale to that of CAP.
Parnell said to Motor Finance that Glass’s forecast would be more rigorous in its methodology than the previous offering.
The new product has added transparency in the way it provides the residual values and also used more of Glass’s expertise to increase the accuracy of the forecasts.
The methodology used starts with a smoothed current value. According to Parnell: "We are aware that trade values can be influenced by short-term supply and demand type movements and shifts, so actually you need to know when to trust the data and you also need to give that some real world experience as well, which is what we do."
Parnell said certain elements of depreciation analysis would benefit specifically. "We don’t take a single month’s transactions, we take six months of retail information," said Parnell. "Then we give it a weighting system and apply an average over the course of the vehicle’s life to take out things like plate effect and seasonality, which can dramatically change a vehicle’s valuation. We make sure it has a stable footing for forecasting."
What sets the product apart from CAP’s, claimed Glass’s, was the company’s approach to the depreciation curve of vehicles.
The product is claimed to take account of seasonality and number plate changes effects on the curve. Rather than looking at the curve in 12 equal blocks, the major steps of the twice-yearly UK number plate change and the effects of seasons on the values of vehicles such as convertibles will be built into the forecasts.
Parnell said: "We’re delivering brand new intelligence into the marketplace that it hadn’t had previously in a data format,
"If you are using data at the moment which only goes up in six-months intervals and you are drawing a straight line between that, or your data supplier is doing a straight line calculation, it can’t possibly be accurate because real life depreciation doesn’t work that way."
The product therefore will aim to be able to tell finance companies the residual value of a car accurate to the month of term-end taking into account major events that may happen just days or weeks before the vehicle is returned.
Black Swans and other factors
Another area where the product will aim to differ from rival products would be in the way it looks at macroeconomic effects such as interest rate rises and ‘Black Swan’ events. An example given was the collapse of Rover and the effect this had even before the complete failure of the firm. According to the team at Glass’s this is something that can be factored into the forecast rapidly.
The source of this data was the network of data providers at Glass’s disposal. According to Parnell there are four million retail and 1.2 million trade ‘observations’ on the market to work from. And as Parnell explained: "The more information they share, the more accurate our trade values become and the better it is for them [the remarketers and finance companies] to be able to take risk and understand it and form a position on it."
Further ‘smoothing’ of data will be handled by the editorial team’s market knowledge, by adding in non-evidential factors which are hard to quantify in pure data.
One example was the level of discount that vehicles are being offered for when new. Another could be knowledge of imminent model facelifts and replacements.
At present the model does not contain options extras data in any detail, but it is something that Glass’s claims is being worked on by the team. The aim has been to identify the options that best suit a model or segment before applying data to all vehicles regardless of buyer’s preferences.
More accurate, more useful
All of the parts of the process involved in developing the RV forecasts Glass’s said would lead to a more accurate forecasting product, one that will be useful to the leasing company before taking on a vehicle, and for the lessor when the vehicle is registered by being better able to predict the real returns and costs of a leasing deal.