Ford Motor Credit Company
Proposed Project for the
MSU Industrial Math Students
Auto Loan Take Up Rate Model
Background: Price revenue management is
increasingly being employed in the financial industry to set interest rates and
terms for consumer loans. A successful revenue management program optimizes
price (interest rate) by formally incorporating the behavioral response of
consumers into the pricing decision. The goal is to establish the optimal
trade-offs between volumes and return, while at the same time achieving company
objectives for portfolio risk and composition. Accurate and robust volume
response models are critical to portfolio optimization, but they present an
ongoing challenge in practice as economic and competitive conditions can change
rapidly in the marketplace. This analysis needs to be done in different
marketplaces.
Project:
Phase I: Statistical analysis on the variables.
Phase II: Contract Level Demand Models and Evaluation: Build
models to forecast purchase to approval rate. Purchase is standard retail
purchase. The predictors include customer characteristics, contract
characteristics, price (APR charged) and other variables. The models will
predict the likelihood that an approved loan application will become a contract.
The goal in this phase is to build two logistic models segmented
by tier, term and fico band: one uses the APR as one of the independent
variables; the other uses the monthly payment as one of the independent
variables. Evaluate the two models and find elasticity at each point. If time
permits, other models can be explored as well.
Top of Page
