NATIONAL LEASING INC.

INFORMATION TECHNOLOGY
CONCEPTS
PROJECT PRESENTATION
Section F (Group 1)
Amit Nigam - PGP26326
Paramjyothi Akula - PGP26356
Sriram S - PGP26370
Vishnuvardhan J - PGP26386
Abhishek Mishra - FPM11007
Issac K Varghese - FPM11004
Business Model of National Leasing Inc
 Company borrows money from bank and buys the
car
 Leases it to customers at a higher interest rate

 Two scenarios

 Market price is more than used car price

 Market price is less than used car price
 Gain or loss for the company at the end of the term

depends on
 Customer decision - return or retain
 EMI during the lease term
Case Summary
 National Leasing Inc. - major independent provider of auto
leases
 High residual value and competitive rates led to large sales
 In 1997, it made a loss of $400 million due to 8% drop in
used car prices
 The flaws observed during the current residual forecasting
process
 Non-consideration of risks of setting high or low residual
values
 Non-consideration of external market information
 Excessive reliance on current market residual value
Spreadsheet modeling
 Parameters considered
 Cost of the car
 Bank lending rate
 Demand curve
 Residual value at the end of the term
 Market value at the end of the term
 Money factor
Assumptions & Limitations
 Assumption:
The used car price = $45,000
 Limitation:
The model ignores the consumer behavior of
keeping or returning the vehicle at the end of the
lease period
Thank you!