The Challenge

challenge-iconThe manager of an automobile lending portfolio for non-captive dealers nationwide engaged Corios to optimize their profit & loss (P&L) pricing model. Their business-as-usual model utilized only nine risk tiers, and required roughly 15 minutes to calculate the net present value margin contribution and return on assets (ROA) for each scenario of a single set of assumptions. These limitations kept the pricing team from developing more sophisticated pricing strategies and optimizing for the ideal price structure on a dramatically more segmented portfolio of dealers and loan prospects.

The Solution

solution-iconCorios developed an automated approach for pricing P&L modeling that integrated the client’s expanded hierarchical segmentation strategy and underlying warehouse records. The new model allowed their pricing VPs to create thousands of segment-specific P&Ls in under a minute. For each P&L, we developed an optimization approach to identify the ROA-maximizing discount rate on each segment of loans, effectively running hundreds of scenarios on each segment. A simple user interface was implemented, allowing the non-technical financial analysts in the team to run their own assumptions and scenarios without technical assistance.

The Results

results-iconThe financial analysts for the lending portfolio are now able to optimize pricing terms at a more precise, highly segmented point of entry in a dramatically reduced time frame (from hours to seconds). This P&L model enhancement is conservatively estimated to have improved the client’s ROA by several percentage points at the portfolio level.


Contact us to learn more about Corios’ Pricing solutions.