Death and taxes may be two things that can be confidently counted on, but used vehicle values are another story. Between import tariffs, the wildly fluctuating price of gasoline caused by the war in the middle east and varying economic conditions, how much a car or truck will be worth over the life of a lease, loan, rental or insurance policy has become almost impossible to predict.

That’s why fintech company Exponential Markets created the tradeable Exponential Auto Index along with a subcomponent focusing on electric vehicles, according to CEO Murali Kanakasabai.

“In creating these indices, we derive data, actual auction data, of used vehicles from the National Auto Auction Association , and so we get the most robust data that comes to us,” said Kanakasabai, in an interview. “We have machine learning algorithm that works under the hood in order to predict what is the used vehicle spot price week over week.”

The goal, he said, is to create a sort of futures market for used vehicles where, through the index, companies can use that as a base in order to bet on future prices and to ensure that they offset that particular risk in a tradable market.

“This is like the last great frontier of things that aren’t hedgeable,” observed Marion Harris, former president and CEO of Ford Credit and a current advisor to Exponential, in an interview. “I mean, farmers can hedge soybeans, oil markets can hedge oil prices, all kinds of other commodities, gold, silver, whatever. But you have this massive market of automobiles, where the price, the future price, is a big determinant in how much someone’s going to charge you for a loan or for a lease.”

As an example, Kanakasabai looks at how the value of a vehicle might change over the life of a lease. If, say, the vehicle is valued at $50,000 at the start of a three-year lease and the lessor expects that value to decline to $30,000 when the lease ends, but the actual value drops to $24,000. The Exponential index is designed as a hedge against that loss.

“Frequently the way the lease is priced, people put in buffers, and therefore the consumer bears some of that risk,” Kanakasabai explained. “Companies also hoard up capital in order to manage that risk. So there’s capital sitting there that’s not being used for anything. With our product, you can hedge that price out 36 months for that $30,000 value, and the market pays you that $6,000. The other side of the market pays you that $6,000 to offline that particular risk. So all of a sudden, it’s a better use of your capital.”

It’s also a benefit to consumers, says Harris, who pointed out that uncertainty on future pricing requires more capital.

“More capital makes the cost of borrowing higher,” he said. “If you can take away that volatility, you take away the need for the excess capital. You lower the cost of capital for the consumer.”

Kanakasabai sees interest in Exponential’s Auto Index beyond automotive, citing attention from companies such as hedge funds and trading firms “because they see an ability to trade auto as an as an asset class.”

For Harris, the ability to hedge against vehicle value fluctuations is long overdue, declaring, “If you step back, it’s shocking that you can hedge pork belly futures--that a farmer can have certainty around a pork belly, but a car maker or an insurance company or a rental car company can’t get a certainty on a forward used car price.”