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Modeling Macro and Product SalesThe Problem: Market Forecasting Under UncertaintyThe market planning division of a motor vehicle manufacturing company wanted a simulation tool to respond to a number of "what if" questions from management. The questions stemmed from uncertainties about economic growth, consumer spending and confidence, business and consumer investment decisions, unemployment, oil prices, exchange rates, and monetary and fiscal policies. The client wanted to be able to access the outlook for motor vehicle sales by vehicle super-segments (luxury cars, midsize cars, subcompact cars, pickups, SUVs, and vans), 20 segments within the super-segments, and more than 10-15 sub-segments under a range of economic conditions. Our Approach: Create a Simultaneous Macro & Vehicle Sales Model All of our client's "what if" questions and their implications for light-vehicles sales can be addressed within Global Insight's model of the U.S. economy. This macroeconomic model captures the full simultaneity of the U.S. economy, forecasting more than 1,600 concepts spanning final demands, aggregate supply, prices, incomes, international trade, industrial detail, interest rates, and financial flows. Light-vehicle demand (automobiles and light trucks) is a key component of final demand. Our approach included adding a detailed vehicle sector to the existing macro model that disaggregated light-vehicle sales by super-segments, segments, and sub-segments. The vehicle sector was embedded into the simultaneous model so that changes to economic growth would impact vehicle sales, and changes to vehicle sales would impact economic growth. Finally, a user-friendly front end was added to the forecasting tool so that model users could easily define and implement alternative forecast scenarios. The Answer: Rapid Responses to Management's "What If" Questions When management asked how our vehicle sales projections would change if oil prices rose another $20 per barrel or the Federal Reserve increased interest rates another 50 basis points, our client was able to quickly simulate his macroeconomic/vehicle forecasting model and identify winners and losers down to the sub-segment level of detail.  |
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