Development of assessment methodology for valuation of used vehicles

Abstract

The recondition segment of Automotive Industry in Bangladesh is flourishing radically but irony is that no justified pricing methodology has been developed till now. Even financial institutions like Bank, Insurance Companies, etc. are performing valuation of vehicles by considering flat depreciation of 15% irrespective the technical condition of vehicle. To mitigate this pricing dispute between buyers and sellers, an attempt has been taken in this study to formulate a pricing methodology and assessment techniques for used vehicles by using field survey, Delphi technique, Analytical Hierarchy Process (AHP) and regression analysis. The pricing chart has been developed where the price can be extracted directly by giving input in the Pricing table after physical assessment of the major aggregates of used vehicle. To develop this pricing table, a survey was carried out by a structured questionnaire among the existing buyers and sellers to identify the key factors which are being considered during negotiation of pricing and to understand the strength, weakness, opportunity and threat of the used vehicles market. Survey was conducted in two phases containing a sample size of hundred where sample size was determined from sample size formula. Experts from different areas in Automotive Industry of Bangladesh were identified and their opinion were assessed by Delphi method to find out the most influential factors out of forty-three factors obtained from field survey analysis. The Delphi method reveals Vehicle Age, Technical Soundness, Out-look, Brand and After Sales Performances as the most influential factors within the criteria of decision making factors, physical inspection factors and brand selection factors. These factors were ranked by paired comparison under Analytical Hierarchy Process (AHP) to get the impact of these key factors on vehicle pricing. Incorporating linear regression model to depreciation, these parameters were organized and programmed in Microsoft Excel Sheet and named as “Pricing Chart”. This pricing chart is expected as a helping aid during the negotiation between buyers and sellers in recondition vehicle segment as revealed by the validation studies.