Modeling for Latin American Motor Vehicle Markets

Market planning in Latin America is difficult in the best of circumstances. Markets historically have tended to undergo boom and bust cycles; this complicates the job of capital investment and financial planning. For a major automotive manufacturer, we developed a market estimation model using scenario-contingent indicators – GDP, interest rates, and unemployment, among others – as the values for the independent variables driving a regression model. We managed to develop very credible scenario-contingent demand estimates that provided directional insight to the client with respect to ranges of future vehicle volumes under different ‘macro’ assumptions. Additionally, we applied “At Risk” techniques to model the impact on the baseline scenario-contingent estimates of specific “shocks” that could occur independent of the scenario. We looked at everything from military coups to vehicle taxes to come up with market estimates and “confidence intervals” for each of four scenarios. The work helped the client to make decisions about manufacturing capacity, products, distribution – and gave them confidence to proceed aggressively, despite the threat of foreign competition, to take advantage of the coming rise of the regional economy.