Exponential Index Hedges Against Changing Vehicle Values

Exponential Markets is building a tradeable benchmark to help companies hedge against used-vehicle price swings. The fintech firm created the Exponential Auto Index and an electric-vehicle subcomponent, using actual auction data from the National Auto Auction Association combined with a machine-learning model to forecast weekly spot prices. CEO Murali Kanakasabai said the objective is to enable a futures-market style tool so firms can offset future price risk tied to vehicle values that affect leasing, lending, and insurance pricing. Former Ford Credit CEO Marion Harris noted that while other commodities can be hedged, the automobile market historically lacked that capability. The article illustrates how an expected residual value drop can be bigger than assumed, and how a hedge would mitigate that gap.