NADA Used Car Guide, now J.D. Power Valuation Services - FAQ's
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What is the Used Vehicle Price Index methodology?

Index data is created as follows:

  • Baseline data
    • Underlying data is derived from a proprietary database containing approximately 90% of all dealer-only auction sales that have occurred in the U.S. since 1992.
  • Filtering
    • Auction transaction types that signify potentially non-representative sales are removed, such as “as is”, “unknown”, and “salvage”. Transactions with abnormally high mileage and abnormally high or low prices are removed because they indicate a potential error in the vehicle record.
  • Mileage adjusting
    • Each record is adjusted to represent the typical mileage for the given age of vehicle, based on statistically derived mileage adjustments.
  • Weighting and aggregation
    • Each record is weighted based on its Mahalanobis distance from the center of the record set. More on this method can be found here: http://en.wikipedia.org/wiki/Mahalanobis_distance.
    • A vehicle and monthly level (e.g. 2013 Honda Civic EX selling in March of 2015) weighted average price is calculated from these records.
  • Indexing
    • Each vehicle level price series (e.g. all the monthly aggregated prices for the 2013 Honda Civic EX equals one series) is indexed to its price at a given point in time (e.g. the current month).
    • Indexing each series prior to aggregating the entire price series together removes most of the potential error from attempting to statistically control for changes in the mix of vehicles within the sample (e.g. more/less expensive trims influencing sample results each month).
  • Aggregation
    • All the vehicle level indices are aggregated together using a sales weighted average to produce one overall depreciating series representing all vehicles.
  • Controlling for depreciation
    • Depreciation is removed from the series based on our analysts' statistically derived estimate of depreciation. The result is the final series, which is usually shown seasonally adjusted.
    • For the purpose of the J.D. Power used vehicle price index, depreciation is defined as the average rate of change in price between two time periods realized in the market place for a specific vehicle or set of vehicles. When adjusting for depreciation, this average amount can be removed from and indexed series so that actual movements in the market, separate from the natural rate of depreciation for a vehicle or set of vehicles, can be measured.
    • This measure of depreciation is similar to a seasonal pattern, in the when the seasonal pattern is removed, the actual degree of market change can be evaluated without the impact of typical seasonal changes which may bias the market in one direction due to what is typically witnessed for that time period.
    • There are two ways to use this information. For practical purposes, accounting for depreciation (like seasonality) provides a fuller scope of market movements in a given time period. From an analytical standpoint, it might be more appropriate to use a series which measures pure market movements and thus does not include the market’s natural rate of depreciation.
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