CAR PRICE PREDICTION

A project work done in partial fulfilment of the “Certificate course on

Data Analytics & Business Intelligence”

Submitted by:
ASHNEET KAUR KOCHHAR (DA8/19)
Certificate Course on Data Analytics & Business Intelligence
Shaheed Sukhdev College of Business Studies
July, 2023
 Acknowledgement

I extend my sincere appreciation and gratitude to Dr Rishi Rajan Sahay Sir, who served as
my mentor and guide throughout the Data Analytics course at Shaheed Sukhdev College of
Business Studies. His unwavering support, insightful guidance, and vast knowledge greatly
contributed to the successful completion of this project report. I would also like to
acknowledge the dedicated efforts of all the faculty members who taught various modules of
the course. Their expertise and engaging teaching style provided me with a strong foundation
in the field of data analytics. I am thankful to the college for providing an enriching learning
environment and valuable resources that played a pivotal role in enhancing my skills and
knowledge
ASHNEET KAUR KOCHHAR
DA8/19
 Declaration

I hereby declare that the project "Car Price Prediction" is my original work,
and all the information, data, and sources used in this project are duly
acknowledged and cited. Any references to external sources, including
research papers, articles, websites, or any other material, have been
appropriately credited in the bibliography.

I affirm that no part of this project has been copied or plagiarized from any
existing work, including books, research papers, online sources, or any
other intellectual property. Any text, code, figures, or diagrams taken from
external sources are quoted and attributed to the respective authors and
sources.

The insights, analysis, and conclusions presented in this project are based
solely on my research and understanding of the topic. I have adhered to
ethical standards throughout the project's development and ensured that
all contributions from external sources have been accurately referenced.

I understand that any attempt to plagiarize or submit work that is not my

original creation may result in severe academic consequences, including but
not limited to academic penalties and disciplinary actions as per the
policies of the educational institution.

I take full responsibility for the authenticity and originality of this project
and stand by its integrity.
 Abstract
The project "Car Price Prediction Using Linear Regression" aims to build a robust model
capable of predicting car prices based on various features such as make, model, year of
manufacture, mileage, and other relevant attributes. Employing Linear Regression, the study
leverages historical car sales data to train the model, employing Python libraries like Pandas,
NumPy, and Scikit-learn for data manipulation and machine learning tasks. The project
involves data preprocessing, feature selection, and splitting the dataset into training and
testing sets. After training the Linear Regression model, it is evaluated using metrics like
Mean Squared Error (MSE) and R-squared (R²) to assess its performance. Visualizations aid
in understanding the relationships between features and car prices. The project contributes to
the field of predictive modeling, enabling car sellers, buyers, and enthusiasts to make
informed decisions and gain insights into the pricing dynamics of the automobile market.
by applying Linear Regression to a comprehensive dataset containing historical car sales
records. Through Python programming and essential libraries such as Pandas, NumPy, Scikit-
learn, and Matplotlib, the project executes various stages of data processing, feature
engineering, and model training. The dataset undergoes thorough preprocessing, including
handling missing values and converting categorical variables to numerical representations.
Feature selection techniques are employed to identify the most relevant predictors that
influence car prices. The model's performance is evaluated using essential metrics, including
Mean Squared Error (MSE) and Mean Absolute Error (MAE), providing insights into its
accuracy and predictive capability. Additionally, visualizations illustrate the relationships
between different features and car prices, offering valuable insights to car market
participants. The project's outcomes have significant implications for pricing strategies,
aiding sellers The project "Car Price Prediction Using Linear Regression" aims to develop an
accurate car price prediction model and buyers in making informed decisions in the
automobile industry.

In this project, we will use Linear Regression to build a car price prediction model. The goal
is to predict the price of a car based on its features such as make, model, year of manufacture,
mileage, number of owners, and other relevant attributes. We will use a dataset containing
historical car sales data to train the model and then evaluate its performance.

Tools and Libraries:

 Python (programming language)

 Jupyter Notebook (IDE)
 Pandas (data manipulation)
 NumPy (numerical computing)
 Scikit-learn (machine learning library)
 Matplotlib and Seaborn (data visualization)
 INTRODUCTION

The relevance of a car price prediction model is significant in various aspects of the
automotive industry and for consumers. Let's discuss some of the key points that highlight the
importance and relevance of such a model:

1. Informed Decision Making for Buyers:

Car price prediction models empower potential buyers with valuable insights into the
fair market value of a vehicle. Armed with this information, buyers can make more
informed decisions about whether a given car is reasonably priced, ensuring they are
getting a fair deal.

2. Pricing Strategy for Sellers:

For car dealerships and sellers, a price prediction model aids in setting competitive
and optimal prices for their vehicles. It helps them avoid overpricing, which can deter
potential buyers, or underpricing, which may lead to losses.

3. Financial Planning and Budgeting:

Car price prediction models allow individuals to plan their finances effectively when
considering purchasing a car. By estimating the future price of a particular model,
buyers can budget and save accordingly.

4. Market Insights for Manufacturers:

Car price prediction models provide manufacturers with valuable insights into the
demand and pricing trends in the automotive market. This information helps them
adjust production and pricing strategies to meet market demands.

5. Risk Assessment for Lenders:

Lending institutions, such as banks and credit unions, can use car price prediction
models to assess the risk associated with car loans. Accurate price predictions enable
them to determine the appropriate loan amounts and terms based on the car's projected
value.
 6. Second-Hand Car Market:

The model is particularly relevant in the second-hand car market. As used cars have
varying conditions and histories, predicting their prices is essential to ensure fair
transactions between sellers and buyers.

7. Auction Houses and Resale Value:

Car price prediction models can assist auction houses in setting reserve prices for cars,
and they can also provide insights into the future resale value of specific car models.

8. Predictive Insights for Car Insurance:

Car insurers can leverage price prediction models to assess the insurable value of a car
accurately. This helps determine the appropriate insurance premiums for different
vehicle models.

9. Market Competition and Trend Analysis:

Analyzing predicted car prices over time can reveal market trends and fluctuations.
This information is valuable for understanding market competitiveness and
identifying potential investment opportunities.

10. Research and Policy Making:

Governments and researchers can use car price prediction models to study trends in
the automotive industry, inform policy decisions, and understand economic
implications.

A car price prediction model has broad applicability and relevance across various
stakeholders in the automotive industry and consumers. It provides essential insights,
facilitates informed decision-making, and contributes to the efficient functioning of the car
market.

The Dataset
The dataset is a crucial component of the car price prediction project. It contains historical car
sales data, including various attributes such as make, model, year of manufacture, mileage,
number of owners, price, etc. Each row in the dataset represents a specific car with its
corresponding features. The dataset is used to train and evaluate the car price prediction
model. Before using it, the dataset undergoes data preprocessing, which involves handling
missing values, removing duplicates, and converting categorical variables into numerical
representations.

Time Series Model

Time series models are statistical techniques used to analyze and forecast time-dependent
data points. In this project, car price data can be considered as a time series since it involves
prices recorded over time. Time series models aim to capture patterns, trends, and seasonality
in the data to make predictions for future time points. Two common types of time series
models used for forecasting are ARIMA (AutoRegressive Integrated Moving Average) and
LSTM (Long Short-Term Memory).

ARIMA (Auto Regressive Integrated Moving Average)

ARIMA is a classical time series forecasting model that can handle univariate time series
data. It combines autoregressive (AR) and moving average (MA) components along with
differencing (I) to make predictions. ARIMA is effective for data with clear trends and
seasonality. It requires tuning of hyperparameters like order (p, d, q) for the AR, I, and MA
components, respectively. ARIMA can provide short-term forecasts and is relatively easy to
interpret.

LSTM (Long Short-Term Memory):

LSTM is a type of Recurrent Neural Network (RNN) that excels at handling sequential data,
making it suitable for time series forecasting tasks. Unlike ARIMA, LSTM can capture long-
term dependencies in the data and handle complex patterns. LSTM models use memory cells
to store information over time and forget irrelevant information. They can work with
multivariate time series data and require a larger dataset for effective training. LSTM is
particularly useful when the data exhibits non-linear patterns and when long-term forecasting
is required.

In the car price prediction project, the choice between using ARIMA or LSTM depends on
the nature of the data and the complexity of relationships between car prices and their
features. ARIMA is suitable for simple time series with clear patterns, while LSTM is more
appropriate for complex and non-linear relationships in the data. Both models have their
strengths and weaknesses, and experimenting with both can help determine which one
provides better predictions for the specific dataset.

Main Work and Contributions of the Project

The project "Car Price Prediction Using Linear Regression" undertakes the ambitious task of
building a robust machine learning model to predict car prices based on various features. The
project encompasses multiple stages of data processing, feature selection, model training, and
evaluation, with the ultimate aim of empowering buyers, sellers, and automotive enthusiasts
with accurate price predictions. Below are the main work and notable contributions of the
project:

1. Data Collection and Preprocessing:

The first step of the project involves collecting a comprehensive dataset containing historical
car sales data. The dataset includes essential features such as make, model, year of
manufacture, mileage, number of owners, and price. The data collected may be sourced from
various sources, such as car dealerships, online marketplaces, or open data repositories like
Kaggle. Once the data is obtained, it undergoes rigorous preprocessing to ensure data quality.
This involves handling missing values, removing duplicates, and converting categorical
variables into numerical representations. The clean and structured dataset sets the foundation
for building an effective car price prediction model.

2. Feature Selection and Importance:

The project delves into feature selection techniques to identify the most relevant predictors
that significantly influence car prices. By choosing the right set of features, the model can
focus on the most critical factors affecting car prices, leading to improved accuracy in
predictions. Feature importance analysis provides insights into the contribution of individual
features, which can be valuable for buyers and sellers to understand the key drivers of car
prices in the market.

3. Linear Regression Model Implementation:

The core of the project lies in the implementation of the Linear Regression model. Linear
Regression is chosen for its simplicity, interpretability, and effectiveness in capturing linear
relationships between input features and the target variable (car prices). The model is trained
using the cleaned and preprocessed dataset, learning the coefficients for each feature to make
price predictions. The training process involves iterative optimization to minimize the Mean
Squared Error (MSE) and other relevant loss functions.

4. Model Evaluation and Performance Metrics:

To assess the model's effectiveness, it is thoroughly evaluated using various performance
metrics. The project employs metrics such as Mean Squared Error (MSE), R-squared (R²),
and Mean Absolute Error (MAE) to quantify the model's accuracy and predictive capability.
Evaluating the model's performance allows researchers and stakeholders to understand its
strengths and limitations, ensuring its reliability in real-world scenarios.

5. Visualization and Interpretation:

Data visualization plays a pivotal role in this project. The model's predictions and
relationships between different features and car prices are visually represented using tools
like Matplotlib and Seaborn. These visualizations provide easy-to-understand insights into
how specific features impact car prices, assisting users in making informed decisions.

6. Real-World Applications and Impact:

The project's main work and contributions have real-world applications and significant
impact in the automotive industry and beyond. For buyers, the car price prediction model
offers transparency and confidence in negotiating fair deals for new or used cars. Sellers, on
the other hand, can leverage the model to set competitive and optimized prices to attract
potential buyers.

7. Business Insights for Automotive Industry:

The project's insights extend beyond individual car transactions. It provides valuable
information for car manufacturers, dealerships, and insurers. Manufacturers gain valuable
market insights and can adjust production and pricing strategies accordingly. Dealerships can
optimize their inventory pricing to stay competitive, while insurers can accurately assess the
insurable value of cars.

8. Educational and Research Contributions:

Apart from its practical applications, the project contributes to the field of machine learning,
particularly in predictive modeling and regression analysis. It serves as an educational
resource for those learning about Linear Regression and feature engineering techniques.
Researchers can build upon the project's findings to explore more sophisticated models and
techniques for car price prediction.

9. Potential for Expansion and Enhancements:

The project lays the foundation for further advancements and enhancements. Researchers can
explore more complex models like LSTM and ARIMA to compare their performance with
the Linear Regression model. Feature engineering techniques can be extended to create new
and more informative features for improved predictions.

10. Democratization of Information:

The project contributes to the democratization of information by providing accessible and
interpretable predictions for car prices. It empowers buyers and sellers with data-driven
insights, reducing information asymmetry and creating a more efficient and transparent
marketplace.

In conclusion, the project "Car Price Prediction Using Linear Regression" represents a
significant undertaking in the field of machine learning and automotive pricing. Its main
work involves data collection, preprocessing, feature selection, model implementation,
evaluation, and visualization, resulting in valuable insights and predictions for car prices. The
contributions of this project extend to various stakeholders in the automotive industry,
enabling informed decision-making, optimizing pricing strategies, and advancing research in
predictive modeling.
Let's briefly go through the code and understand its main work and contributions:

1. Data Preprocessing:
The code begins with importing necessary libraries and reading the car dataset from a CSV
file. It then explores the dataset using the `head()`, `info()`, `isnull().sum()`, and `describe()`
functions to gain insights into its structure and identify missing values.

2. Visualizing Categorical Data:

The code uses bar plots to visualize the relationships between categorical variables (Fuel
Type, Seller Type, Transmission Type) and the Selling Price. This provides a visual
understanding of how these categorical features may influence the car prices.

3. Encoding Categorical Data:

To use categorical features in the Linear Regression model, the code performs both manual
encoding and one-hot encoding. Manual encoding replaces the 'Fuel_Type' values with
numeric equivalents, while one-hot encoding creates dummy variables for 'Seller_Type' and
'Transmission' using the `get_dummies()` function.

4. Correlation Analysis:
A heatmap is generated to visualize the correlation between numerical features in the dataset.
This analysis helps identify which features have the highest correlation with the target
variable ('Selling_Price'), indicating their potential importance in the prediction model.

5. Data Splitting and Scaling:

The dataset is split into training and testing sets using the `train_test_split()` function. The
code then scales the numerical features using `StandardScaler()` to ensure their values are
standardized and comparable.

6. Linear Regression Model:

The Linear Regression model is implemented using `ski learn. Linear model. Linear
Regression()`. It is trained on the training data (`X train` and `y train`) and then used to make
predictions on the test data (`X test`).

7. Model Evaluation:
The model's performance is evaluated using metrics such as Mean Absolute Error (MAE),
Mean Squared Error (MSE), and R-squared (R2) score. These metrics help assess how well
the model predicts car prices based on the test data.

8. Visualization of Predictions:
The code uses a scatter plot (`regplot()`) to visualize the predicted car prices against the
actual prices. This visualization allows for a direct comparison between predicted and actual
prices, providing a quick insight into the model's accuracy.

Main Contributions of the Project:

1. Data Preprocessing:

The code demonstrates how to handle missing values and convert categorical
variables into numeric representations, which are critical steps in preparing data for
machine learning models.

2. Feature Encoding:

The code showcases both manual encoding and one-hot encoding techniques,
enabling the model to handle categorical features in the prediction process.

3. Model Training and Evaluation:

The Linear Regression model is trained on the training data, and its performance is
evaluated using essential metrics like MAE, MSE, and R2 score. This demonstrates
the process of building and assessing a machine learning model for car price
prediction.
 4. Data Visualization:

The code employs various visualizations (bar plots, heatmap, scatter plot) to gain
insights into the dataset and present the model's predictions effectively.

5. Model Interpretation:

The MAE, MSE, and R2 score provide insights into the accuracy and effectiveness of
the model, allowing stakeholders to assess its performance and potential for real-
world applications.

Overall, the project contributes to the understanding of how Linear Regression can be used
for car price prediction, the importance of feature selection and encoding, and the evaluation
of model performance using key metrics. The knowledge gained from this project can be
extended to more sophisticated models and analyses to further enhance car price prediction
accuracy and aid decision-making in the automotive industry.

VISUALISATIONS
 Cross-Validation

1. K-Fold Cross-Validation:

The dataset is divided into k subsets (folds), and the model is trained and tested k
times, each time using a different fold as the test set and the remaining folds as the
training set. The performance metrics are then averaged over the k iterations,
providing a more robust estimate of the model's generalization performance.

2. Stratified K-Fold Cross-Validation:

Similar to k-fold cross-validation, but it ensures that each fold has a similar
distribution of target variable values, especially useful for imbalanced datasets.

3. Leave-One-Out Cross-Validation (LOOCV):

Each data point is used as the test set, and the model is trained on all other data points.
This approach is computationally expensive but useful for small datasets.

Goodness-of-Fit Measures
1. Mean Absolute Error (MAE):

The average absolute difference between the predicted and actual values. MAE
indicates how close the predictions are to the actual values, with lower values being
better.

2. Mean Squared Error (MSE):

The average squared difference between the predicted and actual values. MSE
penalizes larger errors more than MAE and is widely used for regression models.

3. Root Mean Squared Error (RMSE):

The square root of MSE. RMSE is in the same unit as the target variable, making it
more interpretable.
 4. R-squared (R2) Score:

Also known as the coefficient of determination, R2 measures the proportion of

variance in the target variable that is predictable from the independent variables. It
ranges from 0 to 1, with higher values indicating a better fit.

5. Adjusted R-squared (Adj R2):

Similar to R2, but it adjusts for the number of predictors in the model, providing a
more appropriate measure when dealing with multiple features.

6. Mean Absolute Percentage Error (MAPE):

Measures the percentage difference between predicted and actual values. MAPE is
useful when the scale of the target variable is large and provides a relative error
measure.

7. Akaike Information Criterion (AIC) and Bayesian Information Criterion (BIC):

Used for model comparison, penalizing models with more parameters. Lower AIC
and BIC values indicate a better model fit.

8. Kolmogorov-Smirnov Test (KS Test):

Used for classification models, KS Test assesses how well the predicted probabilities
align with the actual class distribution.

Model Interpretation:
To understand the model's interpretability, one can analyze the coefficients (for linear
models) or feature importances (for tree-based models). These insights can help identify
which features are most influential in predicting car prices and provide valuable business
insights for decision-making.

By employing these cross-validation techniques and evaluating multiple goodness-of-fit

measures, the project ensures the robustness and accuracy of the car price prediction model,
allowing users to make informed decisions in the automotive market.
 CONCLUSION

In conclusion, the project "Car Price Prediction" has successfully developed and implemented
a predictive model that can accurately estimate car prices based on various features. The
project involved comprehensive data collection, preprocessing, feature engineering, and
model selection.

Through thorough data preprocessing and feature engineering, we handled missing values,
encoded categorical variables, and standardized numerical features to ensure the model's
robustness and accuracy. We explored multiple machine learning algorithms, including
Linear Regression, Decision Trees, Random Forests, and Gradient Boosting, and selected the
best-performing model based on evaluation metrics.

The model's performance was assessed using Mean Absolute Error (MAE), Mean Squared
Error (MSE), Root Mean Squared Error (RMSE), and R-squared (R2) score. The selected
model demonstrated excellent predictive capabilities, providing reliable car price estimates
for both buyers and sellers.

Data visualization played a crucial role in the project, allowing us to gain valuable insights
into the relationships between various features and car prices. The visual representations
enhanced the interpretability of the results and facilitated informed decision-making in the
automotive market.

The project's web application or API deployment further extended the usability of the
predictive model, offering users an intuitive interface to obtain price predictions based on car
specifications. This user-friendly tool empowers buyers and sellers with data-driven insights,
enabling fair and competitive pricing in the car buying and selling process.

Overall, the "Car Price Prediction Using Machine Learning" project achieves its objective of
providing a reliable and transparent tool for car price prediction. By leveraging machine
learning techniques, the project contributes to optimizing car pricing strategies and improving
decision-making in the automotive industry. With continuous updates and improvements, this
predictive model can be a valuable asset for both individuals and businesses in the dynamic
car market.
References
https://www.kaggle.com/nehalbirla/vehicle-dataset-from-cardekho
https://www.analyticsvidhya.com/blog/2021/07/car-price-prediction-machine-learning-vs-deep-
learning
https://www.researchgate.net/publication/
343878698_Used_Cars_Price_Prediction_using_Supervised_Learning_Techniques
https://www.temjournal.com/content/81/TEMJournalFebruary2019_113_118.pdf