This document discusses mileage fraud in used cars and analyzes the potential costs and benefits of implementing the Car-Pass system. It provides an overview of used car market dynamics, how mileage fraud can benefit certain parties, and estimates the monetary value of mileage fraud. Specifically, it calculates the costs of accelerated depreciation and higher maintenance/repair costs due to mileage tampering in various European countries. It finds that mileage fraud results in substantial financial losses across the used car industry and for consumers.

1. The economical impact of mileage fraud
and
the cost benefit analysis of the Car-Pass system
Brussels, 18th of November 2010
Michel van Roon, Director CRM used car management

2. Car-Pass I Agenda
- Introduction of the study
- Used car market dynamics relevant to mileage fraud
- Used car pricing mechanism and impact on mileage fraud
- Where does mileage fraud pay off?
- Monetary value of mileage fraud
- Cost benefit analysis of Car-Pass system
- Conclusions
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3. Car-Pass I Introduction study
Scope:
• Assessment of the economic impact of mileage fraud with used cars in:
- Belgium,
- Luxembourg,
- Netherlands,
- France and
- Germany.
• Cost benefit analysis of the Car-Pass system
Approach :
• Qualitative: Interviewing 69 stakeholders
• Quantitative: Desk research & development of a calculation model
• Consumer survey: “Study of buyers ‘trust in used cars’ purchasing and
measure the value of a system such as Car Pass”
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4. Car-Pass I UC Market Dynamics
New cars sales are source for the used car market (supply)
4

5. Car-Pass I UC Market Dynamics
New car sales are the source for the used car market (supply)
Used car market in an open market:
• Private consumers
• Fleet customers incl. short rental companies
• Leasing companies (operational lease & financial lease)
• Import & Export
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6. Car-Pass I UC Market Dynamics
Cross border flow of used cars is initiated because of almost
fundamental supply & demand imbalances
Supply & Demand in CEE countries (quantitative imbalance)
• Economic growth creates a demand for used cars.
• The natural supply of used cars, feeded by local new car sales, is
limited.
• Lack of supply is compensated by importing used cars.
6

7. Car-Pass I UC Market Dynamics
Car-density
per country
7
186
267
318
368
374
383
409
412
417
428
454
460
461
466
472
475
479
487
490
502
508
549
594
0 100 200 300 400 500 600 700
Romania
Slovakia
Hungary
Bulgaria
Denmark
Poland
Czech Republic
Portugal
Ireland
Greece
Norway
Sweden
Netherlands
Belgium
France
Spain
Finland
Slovenia
UK
Germany
Austria
Switzerland
Italy
Cars/1.000 inhabitants

8. Car-Pass I UC Market Dynamics
Cross border flow of used cars is initiated because of almost
fundamental supply & demand imbalances
Supply & Demand in mature EC countries (qualitative imbalance)
• Private customers tend to drive longer with their new cars (lower
supply of low mileage used cars)
• Private customers tend to drive smaller/more fuel efficient cars
• Corporate supply: bigger cars, higher mileages, = mismatch
8

9. Car-Pass I UC Market Dynamics
An example on macro
level:
RV differences
in EU-countries
9
Source: EurotaxGlass

10. Car-Pass I UC Market Dynamics
Some research findings:
The spokesman of BvfK (Germany) mentioned that German traders
were importing used cars from Italy. Looking at the RV index of
Eurotax, quite logical.
The Remarketing executive of Lease Plan mentioned that Italian
traders were buying used cars in Germany. Looking at the Eurotax RV
index, this is not logical.
What is the trigger for these used car flows?
10

11. Car-Pass I UC Market Dynamics
The procurement manager of AAA Auto in Prague:
“International trade with used cars is not profitable without tampering
the odometer.”
Our conclusion:
Odometer tampering balances used car supply and demand, both
quantitative & qualitative.
11

12. Car-Pass I UC pricing mechanism 12
Source: © Copyright 2010 CRM used car management
-/-
-/-
-/-
-/-
-/-
-/-
=
Overhead
Warranty cost
Profit margin
Negotiation margin
Transportation cost
Refurbishing costTop-down
calculation
determines
purchase price
Used car maximum sales price
Maximum purchase price of the used car

13. Car-Pass I UC pricing mechanism
What happens when the demand is high, but the supply of the
required quality is:
• not available (short of supply) or
• too expensive (RV differences)
• Lowering profit is an option, but unlikely to happen.
• Odometer tampering is a solution to ‘create’ rare supply to
meet demand
The supply and demand situation in both EC and CEE countries
give enough friction to stimulate odometer tampering to secure
profit.
13

14. Car-Pass I Where does mileage fraud pay off?
• Are there technical barriers?
• Who manipulates the odometer?
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15. Car-Pass I Where does mileage fraud pay off?
Technical barriers to odometer tampering:
15
Search key-words Country # Google results
Tacho manipulation Germany 10.800
Kilometer correctie Netherlands/Belgium 35.100
Trafiquer le kilometrage France/Belgium 585.000

16. Car-Pass I Where does mileage fraud pay off?
Technical barriers to odometer tampering:
• Car specs are easily accessible: This may be a counter effect of the
current and future BER.
• Fairly cheap to execute: a visit by the “mileage-doctor” starts at €
40,-
• Required tools: Laptop & car specs, OBD-plug & cable and
commonsense
• On first sight it is not noticeable: it requires physical verification &
inspection for each individual car, including multiple phone calls/e-
mails/etc.
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17. Car-Pass I Where does mileage fraud pay off?
• Every change of ownership is a possible moment for odometer
tampering and illegal profit.
• The moment a new owner ‘has to believe’ the history of the car
instead of receiving ‘written proof”, the chances of mileage fraud rise
rapidly. At that moment a situation of asymmetric information exists.
• For people who deliberately want to make illegal profits, seek
situations of asymmetric information is a chance to make money. They
continuously make a trade-off:
• Risk of getting caught
• Potential gain
17

18. Car-Pass I Where does mileage fraud pay off?
Example 1
• Lessee exceeds his contractual maximum mileage. To avoid mileage
compensation to the leasing company, he/she may tamper the
odometer.
Example 2
• Leasing company sells its ex-leasing cars to international trader. The
car is exported to a country with a less common language
Example 3
• Private consumer sells his car to another consumer
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19. Car-Pass I Monetary value of mileage fraud
Consumer damage:
• Car has more wear & tear: higher maintenance & repair costs
• Accelerated depreciation at the end of the product life cycle
Retailer damage:
• Search costs
• Mileage/maintenance/repair/damage checks
• Missed sales
• Due to uncertainties, retailers are limited in buying trustable used
cars (good ones and manipulated ones)
19

20. Car-Pass I Monetary value of mileage fraud
In this research we calculate the monetary value of mileage
fraud based on the following principles:
• Every mileage manipulation leads to a financial loss
• The costs of mileage fraud in this research is limited to
• Accelerated depreciation
• Higher maintenance & repair costs
• Violations against tax or income regulations are excluded
• Mileage fraud takes place when ownership has changed
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21. Car-Pass I Monetary value of mileage fraud
In this research we calculate the monetary value of mileage
fraud based on the following principles:
• Accelerated depreciation is based on:
• Estimates of the interviewed stakeholders
• Desk research
• Samples of auction transactions, internet values
• Leasing company data, checked with confidential Eurotax data,
published research of several external sources
• Three car segments: small, medium & executive
• Higher maintenance & repair costs are based on:
• Leasing company calculations checked with interviewed
stakeholders and ADAC/ANWB data
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22. Car-Pass I Monetary value of mileage fraud
In this research we calculated the monetary value of mileage
fraud based on the following principles:
• Two kinds of ownership changes:
• Local market transactions
• Cross border transactions
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23. Car-Pass I Monetary value of mileage fraud
Average number of manipulated used cars per year
Desk research
• Car-Pass (Belgium)
• manipulation since start dropped from 8.6% to 0.2%
• Exported cars to France: 43,3% were manipulated (2008)
• Nationale Autopas (Netherlands)
• 5% of national car park might be manipulated (down from 20% in
1991)
• 12% of all odometers are suspected
• ADAC (Germany)
• 30% of car park might be manipulated (2004, in cooperation with
Dekra)
• OFT (United Kingdom
• 5-12.5% have a mileage discrepancy (HPI)
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24. Car-Pass I Monetary value of mileage fraud
Average number of manipulated used cars per year
Consumer survey in countries of scope
• “Have you ever bought a used car with a clocked mileage?”
• 5% of all respondents have noticed that they had purchased a clocked
used car
Automotive professionals (interviews and crowd sourcing)
• 30-40% of all imported used cars are manipulated
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25. Car-Pass I Monetary value of mileage fraud
Average number of manipulated used cars per year
Two scenarios for domestic transactions:
• Low mileage fraud scenario: 5% of all yearly used car transactions
• High mileage fraud scenario: 12% of all yearly used car transactions
One scenario of import transactions:
• 30% of all imported used cars have been manipulated
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26. Car-Pass I Monetary value of mileage fraud
Estimated ‘clocked’ miles through odometer tampering
Desk research
• Car-Pass: 83.258 km (2009)
• ADAC: 33.000 km (rough estimate)
• OFT: 67.612 miles (non-representative sample)
Domestic vs. imported used cars: the figures we calculate with:
• Domestic odometer tampering: 30.000 km
• Cross border odometer tampering: 60.000 km
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27. Car-Pass I Monetary value of mileage fraud
If the average odometer is manipulated by 60.000 km’s, what is
the financial loss due to accelerated depreciation?
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28. 5 year
€
2 year 3 year 4 year Time
Car Value Depreciation curve, Mileage versus Age
Apparent car value increases,
due to lowering mileage, with a
“new historical average” of
30.000km/year Accelearated
depreciation &
damage for
consumer
M2
A.
25.000
15.000
10.000
5.000
20.000
Depreciation
based on
50.000km/
year Actual
depreciation
continues
Perceived
car value of
consumer
M0
1 year 6 year
New usage period
B.
M1
(1)
(2
)(3)
Source: © Copyright 2010 CRM used car management
Car-Pass I Monetary value of mileage fraud 28

29. Car-Pass I Monetary value of mileage fraud
If the average odometer is manipulated by 60.000 km’s, what is
the financial loss due to extra repair and maintenance costs?
29

30. Car-Pass I Monetary value of mileage fraud 30
Purchase
moment new
owner
Vehicle accumulated
wear & tear and
subsequent cost on
moment of sale
180.000
€
First repair/
maintenance
moment new
owner
Last mainte-
nance & repair
previous owner
120.000 150.000
Kilometers
Accumulated
Cost
Mileage fraud and the costs of extra repair & maintenance cost
Expected repair and
maintenance cost
60.000
B.
A.
90.000
Vehicle actual
accumulated wear
& tear and
subsequent cost
Source: © Copyright 2010 CRM used car management

31. Car-Pass I Monetary value of mileage fraud
The calculated costs of mileage :
Accelerated depreciation in € per car
Domestic Imported
• Small (€ 15.000) € 800 € 1.220
• Medium (€ 30.000) €1.233 € 2.500
• Executive (€ 60.000) €1.800 € 4.800
Additional maintenance & repair costs in € per car
Domestic Imported
• Small € 300 € 375
• Medium € 750 € 1.050
• Executive € 900 € 1.350
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32. Car-Pass I Monetary value of mileage fraud
With these data, we calculated the damage of mileage fraud in the
countries of scope
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33. Car-Pass I Monetary value of mileage fraud 33
Germany
Segment Split (#) (#)
Small 45,1% 165.072 €149.749.697 337.198 €287.450.966
Medium 44,7% 163.608 €254.626.560 334.208 €464.976.316
Exec. 10,2% 37.150 €95.311.484 75.888 €165.039.926
Total 100,0% 365.830 €499.687.742 747.295 €917.467.207
Small 45,1% 165.072 €52.680.882 337.198 €104.318.857
Medium 44,7% 163.608 €135.231.066 334.208 €263.181.039
Exec. 10,2% 37.150 €37.701.424 75.888 €72.565.645
Total 100,0% 365.830 €225.613.372 747.295 €440.065.541
Total €725.301.114 €1.357.532.748
Increased Depreciation
Low scenario High Scenario
Increased maintenance & repair costs

34. Car-Pass I Monetary value of mileage fraud 34
France
Segment Split (#) (#)
Small 45,1% 126.369 €107.543.978 281.789 €231.880.023
Medium 44,7% 125.248 €154.430.859 279.290 €344.364.161
Exec. 10,2% 28.440 €61.558.849 63.418 €124.519.479
Total 100,0% 280.057 €323.533.686 624.497 €700.763.663
Small 45,1% 126.369 €39.062.244 281.789 €85.688.261
Medium 44,7% 125.248 €98.501.548 279.290 €214.032.753
Exec. 10,2% 28.440 €27.151.025 63.418 €58.631.340
Total 100,0% 280.057 €164.714.816 624.497 €358.352.354
Total €488.248.502 €1.059.116.017
Increased Depreciation
Increased maintenance & repair costs
Low scenario High Scenario

35. Car-Pass I Monetary value of mileage fraud 35
Luxembourg
Segment Split (#) (#)
Small 45,1% 2.112 €2.310.646 3.000 €3.021.097
Medium 44,7% 2.094 €4.437.465 2.974 €5.522.736
Exec. 10,2% 475 €1.853.619 675 €2.213.374
Total 100,0% 4.681 €8.601.730 6.649 €10.757.208
Small 45,1% 2.112 €744.556 3.000 €1.010.975
Medium 44,7% 2.094 €2.009.683 2.974 €2.669.824
Exec. 10,2% 475 €577.542 675 €757.419
Total 100,0% 4.681 €3.331.781 6.649 €4.438.218
Total €11.933.511 €15.195.426
Low scenario High Scenario
Increased Depreciation
Increased maintenance & repair costs

36. Car-Pass I Monetary value of mileage fraud 36
Netherlands
Segment Split (#) (#)
Small 45,1% 46.763 €41.400.830 98.932 €83.135.840
Medium 44,7% 46.349 €69.077.851 98.055 €132.831.433
Exec. 10,2% 10.524 €25.358.020 22.265 €46.491.574
Total 100,0% 103.637 €135.836.702 219.252 €262.458.847
Small 45,1% 46.763 €14.741.554 98.932 €30.392.183
Medium 44,7% 46.349 €37.586.302 98.055 €76.365.853
Exec. 10,2% 10.524 €10.434.061 22.265 €21.000.838
Total 100,0% 103.637 €62.761.917 219.252 €127.758.874
Total €198.598.619 €390.217.721
Increased Depreciation
Increased maintenance & repair costs
Low scenario High Scenario

37. Car-Pass I Monetary value of mileage fraud 37
Europe (EU25)
Segment Split (#) (#)
Small 45,1% 1.201.520 €1.141.801.495 2.281.698 €2.005.943.811
Medium 44,7% 1.190.864 €2.008.268.869 2.261.461 €3.328.315.714
Exec. 10,2% 270.409 €777.033.342 513.509 €1.214.613.167
Total 100,0% 2.662.793 €3.927.103.706 5.056.668 €6.548.872.692
Small 45,1% 1.201.520 €392.703.470 2.281.698 €716.756.838
Medium 44,7% 1.190.864 €1.020.993.302 2.261.461 €1.823.941.504
Exec. 10,2% 270.409 €286.912.475 513.509 €505.702.388
Total 100,0% 2.662.793 €1.700.609.247 5.056.668 €3.046.400.730
Total €5.627.712.953 €9.595.273.422
Low scenario High Scenario
Increased Depreciation
Increased maintenance & repair costs

38. Car-Pass I Monetary value of mileage fraud
• Based on realistic figures & assumptions, the total financial loss of
mileage fraud in the researched countries may be up to:
€ 2.875.627.766,-
• This damage is caused by:
• No registration of mileages during the use of the car
• No exchange of registered mileages during the use of the car
• Lack of EU legal framework
• This lack of information causes a situation of asymmetric information in
which:
• ‘criminal’ traders know exactly what they sell
• consumers overpay when buying a used car and
• consumers are faced with higher maintenance & repair costs than
expected
38

39. Car-Pass I Cost benefit analysis of Car-Pass
• Research clearly shows the benefit of the Car-Pass business model
having tremendous benefits when it comes to protecting the consumers
against mileage fraud in a closed market.
• If the other countries would apply the Car-Pass business model
(calculated with Belgian fraud levels) and import & export fraud on the
same level as local transactions, consumer savings would be:
39
Scenario's
Low 5% High 12%
Netherlands €192.762.315 €384.381.416
France €471.401.428 €1.042.268.943
Germany €705.412.639 €1.337.644.273
Luxembourg €11.776.290 €15.038.205
€1.432.528.630 €2.830.508.795

40. Car-Pass I Cost benefit analysis of Car-Pass
Operating costs
• Car-Pass currently works with an yearly budget of € 3.000.000,- to
reach a mileage fraud incidence rate of only 0,2%
• These costs are paid by consumers paying for their Car-Pass Certificate
(€ 6,35)
Indirect costs
• Indirect costs of the automotive sector: € 2.845.500,-
• Registering 1.35 million mileages automatically & manually
• Savings realized for consumers and honest retailers are at least 100
million euro (low scenario) per year.
Cost benefit factor: only 0,028 (low scenario)
40

41. Car-Pass I Cost benefit analysis of Car-Pass 41
Belgium Netherlands France Germany Luxembourg
Low scenario cost/benefit
ratio
0.028 0.019 0.023 0.022 0.013
High scenario cost/benefit
ratio
0.017 0.010 0.011 0.012 0.010
Example Germany
• The Car-Pass system could save the German consumers 705 million euro (low
scenario) or 1.34 billion euro (high scenario).
• These savings could be realized by the automotive industry by spending only
15.7 million euro to fight mileage fraud.

42. Car-Pass I Cost benefit analysis of Car-Pass 42
• 61% of the interviewed consumers support the idea of a Car-Pass-like central
database.
• The Car-Pass system should be carefully considered to be implemented in
Europe because
• Its operation costs are low
• The Car-Pass system provides a proven solution
• It has a sound cost/benefit ratio

43. Car-Pass I Conclusions
• Mileage fraud is a common fact in the national & international car
trade, but not much talked about.
• Mileage fraud has become a clearing instrument to match a
fundamental imbalance of supply and demand in the international and
local car trade.
• Mileage fraud costs the European consumer between 5.5 and 9.5 billion
euro.
• Mileage fraud prevention saves more than prosecution.
• Mileage fraud deserves to be eradicated as soon as possible.
• A European approach is needed so that every consumer in Europe can
trust the used car he or she is buying.
43

44. CRM I Contact
If you want to know more about this study or CRM used car management,
please contact:
• Michel van Roon Director
• Kris Peeters Director Belgium
• Rob Henneveld Sr. associate consultant
• Telephone +31 73 8200010
• E-mail info@usedcarmanagement.com
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