Property of Nomis Solutions Inc.

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Innovative Strategies and Technologies to Fuel
Growth Pricing Optimization Auto Finance
Executive Primer
Frank Rohde Chief Marketing Officer VP Product
Management Nomis Solutions
AFSA Vehicle Finance Conference February 7, 2008
Property of Nomis Solutions Inc. Confidential
Material
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About Nomis Solutions

• Market Leader in Profit-based Pricing for Banking
  Finance
• Most Customers and Experience
• Exclusive Focus on Banking Finance
• Best-in-Class Technology Science
• Fastest Time-to-Benefit
• Nomis Price Optimizer for
• Auto Finance
• Home Equity Lending/Mortgages
• Personal Lending

Founded in 2002, Nomis Solutions is the leading
provider of Profit-based Pricing solutions for
banking and finance.
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How Does Price Optimization Fit In?

• What were hearing from auto finance
  execs
• Manage increasing loss rates
  
• Achieve profit improvements by end of FY08
• Continue to increase shareholder value despite
  decreased lending volume
• Create a more favorable credit mix and understand
  long term impact of current credit mix on
  portfolio
• Identify opportunities for growth in a volatile
  lending environment

How Price Optimization can help

1. Measure and manage adverse selection
2. Price optimization is accretive in 6-8 months
3. 10-20 profitability increases without volume
   hits
   
4. Simulate and optimize tradeoffs across credit
   tiers and segments
5. Identify competitors pricing and underwriting
   trends and optimize response to competitors

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Pricing Practices and Processes are Flawed

Auto Finance companies use similar processes to
deploy their rates. However, the current
process is flawed. Most organizations lack the
tools and insights necessary to use pricing as a
strategic lever to achieve performance
objectives. These shortcomings result in
10-20 losses in profits and volumes.
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Profit-Based Pricing Process Best Practices
Using a more advanced, Profit-based Pricing
approach empowers auto finance companies with the
tools and insights necessary to price more
strategically and intelligently. These
improvements result in 10-20 increases in
profits and volume.
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Nomis Pricing Optimization Deal Management
Solution
Nomis Price Optimizer

• Rate Sheet Development
• Goals, targets rules
• Tactics / Controls
• Baseline Management
• Global Input Management
• Cross portfolio Optimization

• Price Sensitivity Models
• Profit Model
• SmartRanges
• Deal-level Pricing Controls

Profitability Analytics
Optimized Rate Sheets
LOS
Nomis Offer Optimizer
Apps

• Smarter Negotiation Ranges
• Real-time Deal Structuring Calculation
• Dealer Performance Deal History

Price ExecutionCredit Analyst interactively
structures the optimal deal with guidance from
the Nomis Optimizer Optimizer
Credit Analyst
Dealer
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Where is Price Optimization in Auto Finance?
Strong in-market results 10-30 profit gains and
20-25 volume gains
Leading to rapid adoption of Nomis technology
Annual Origination Volume Optimized Using Nomis
Price Optimizer
Annual growth rate (CAGR) of adoption is 80
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Key Insights from Price Optimizationin Auto
Finance the numbers (on average)

• 40 of rates go up, 40 of rates go down, 20
  stay the same
• Average rate change 12bps
• SmartRanges limit the most severe 20 of
  overrides
• Dealer price elasticity varies by 2-3x across
  dealer segments
• Consumer price elasticity varies by 4-5x across
  consumer segments
• 60 of benefits accrue through optimizing
  existing rate structure
• 40 of benefits accrue through pricing
  expansion additional risk score bands,
  regional pricing, dealer segmentation, fee
  variation
• Average time to benefit on price optimization
  investment 16 weeks
• Average reduction in time-to-market of pricing
  actions from 2 weeks to 2 days
• Adverse selection can impact bad rates by up to
  2x
• 620 FICO _at_ 11 7 Bad Rate,
• 620 FICO _at_ 15 12 Bad Rate
• Patent-pending Nomis Adverse Selection Trend
  Index quantifies adverse selection (credit
  migration due to pricing)

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How You Use Pricing Optimization Depends on Your
Business Model
Consistency
Flexibility
Off-rate Sheet Pricing
Hybrid Approach to Pricing
Auto-decisioning

• Organization focused on rate-sheet pricing
• Overrides are ok
• for some deals
• 3-20 of deals negotiated

• Negotiation is a key driver of business
  strategy
• Well make the
• deal work for you
• gt20 of dealsnegotiated

• Organization dedicated to rate- sheet pricing
• Overrides are bad
• Less than 3 of deals negotiated

Rate Sheet individual deal optimization
Rate Sheet optimization
Rate Sheet negotiation range optimization
Nomis Price OptimizerTM for Auto Finance
SmartRangesTM
Nomis Price OptimizerTM for Auto Finance Nomis
Offer OptimizerTM
Nomis Price OptimizerTM for Auto Finance
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The Basic Improvements from Profit-based Pricing

• Generate profit and volume increases by better
  tailoring buy rates
• Segment dealers and customers
• Manage price elasticity
• Optimize volume / profit tradeoffs
• Use a consistent, repeatable and efficient
  pricing process
• Eliminate spreadsheets
• Eliminate manual coding
• Satisfy fair lending requirements
• Evaluate responses to competitor price moves
  before executing rate changes
• Play what-if on the competition
• Optimize response to competitor rate changes

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Get a Deeper Understanding of Your Business

• Forecast future performance based on pricing
  plans Understand how rates impact future
  performance and identify where to make changes in
  order to achieve plan.
• Stress test the forecast with macroeconomic
  changes Be proactive by testing how a change in
  vehicle sales, the unemployment rate, or auction
  values impact the forecast and develop a pricing
  plan to respond to these new in-market
  conditions.
• Understand the impact of subvention and
  promotions Avoid cannibalizing products by
  understanding the impact of subvention,
  promotions, or lease rates on the portfolio
  before implementing prices.

March
April
May
Auto Finance Portfolio 2008 Forecasting Period
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Thank You
Frank RohdeChief Marketing Officer and Vice
President, Product Management frank.rohde_at_nomissol
utions.com