ADESA Looking to Open Chicago Greenfield, Expand Further into Mexico

By Richard Greene, Auto Group Features Editor
October 02, 2008

Email this story Printer Friendly Version

WASHINGTON, D.C. — Coming on the heels of seven major auction acquisitions within the last 12 months, ADESA executives announced at a media briefing Wednesday at the NAAA convention that they are taking several concrete steps to further strengthen or to expand the company's footprint, not only in the U.S., but also in Mexico and among buyers in many other regions of the world.

No new acquisitions were announced to the group of reporters assembled in Washington, D.C., but ADESA officials did say that the company has identified property in Chicago where it's looking to purchase, develop and build a greenfield operation in the third largest auction market in this country.

In addition, existing operations in three cities that are being relocated to new larger facilities are projected to open on a staggered time table in the coming months, executives said.

First up will be Kansas City, anticipated to hold its first sale in January 2009, followed by Dallas, now expected to open in late July or early August. A projected date for Phoenix is presently up in the air, officials indicated.

At the same time, executives said the company is planning to open within the next year or so two greenfield facilities in Mexico, where it already operates an auction in Mexico City. These will be in Guadalajara and Monterey.

On top of these moves, ADESA is aggressively working on cultivating a list of international buyers who can purchase vehicles via the Internet from its 62 auctions in North America.

Building in the Windy City

According to Jim Hallett, president and chief executive officer, and Warren Byrd, executive vice president of corporate development, ADESA has located potential property well-suited for an operation that could one day house 14 to 18 lanes.

Both executives said they hope that the land can be secured in 2009, that a master plan can be devised and that a facility can be constructed in phases and finally opened sometime in the middle of 2010.

"This new auction in Chicago has the potential to become one of our largest and most expensive auctions," Hallett noted.

Byrd added that he has already been working on this expansion possibility for a number of months.

And just prior to the late-afternoon media briefing Wednesday, Byrd said he was on the phone with civil engineers in Chicago. Basically, the bigger the city, the more complex the process, he said.

"Greenfields take a long time to develop, take a long time to build and then take a long time to grow the business to a positive cash flow once you get up and running," Byrd explained. "But we are planning to construct a big auction on a large piece of property. However, we don't want to be premature in anything that we announce."

Additional Acquisitions?

Over the past 12 months, ADESA has acquired auctions in Fargo, N.D.; Sioux Falls, S.D.; Syracuse, N.Y.; York, Pa.; Nashville, Tenn.; and Minneapolis. It also picked up sale in Quebec City in Canada.

"After the Minneapolis deal, Warren had a lot of phone calls. It's just a question as to how we can best be selective, strategic and disciplined," Hallett stated.

"I'm not sure that we will have any more acquisition announcements by the end of the year, but I can say that we have a lot in discussion," he further pointed out.

Hallett added that he and Byrd, along with other senior executives, have devised a five-year plan that will be presented to ADESA's board of directors in October.

Along those lines, Byrd said, "We are a strong number two player, but there's a lot of room to grow still and to be competitive and to help our industry. We do plan to do more acquisitions, more relocations, more greenfields and more facility expansion. This is an extremely exiting time."

Growth South of the Border

Meanwhile, Hallett said the operation in Mexico is exceeding all of its expectations. As a result, he said ADESA is moving on plans to launch two additional greenfield sites in the country to augment its operation in Mexico City.

"The budget that we laid out for Mexico City this year, we have absolutely destroyed it. It's been our biggest year of growth," the CEO noted. "We've been there six or seven years, and it's taken this long to gain traction, but growth is now coming."

According to Hallett, the operation in Guadalajara will most likely be launched first sometime in 2009. He could not confirm the same time frame for Monterey, but next year is the dream, he indicated.

Hallett said a greenfield sale in Mexico is not identical in structure to one in the U.S.

"The operation may be out in a field and not a paved lot, and cars may run through a tent instead of a brick-and-mortar building as we're used to here," he said. "But we're selling vehicles in Mexico for GMAC, Ford Credit, lease companies, rental companies and dealers."

But Byrd was quick to add that these Mexican operations are still considered physical auctions and are equipped with all of ADESA's sophisticated technological infrastructure.

"So a dealer in eastern Europe can buy a car from Mexico just as he can from the U.S. or Canada," Byrd explained. "That's part of our globalization effort."

Expanding E-Business Capabilities Overseas

And that is certainly true for ADESA's burgeoning online international buyer activity. According to Hallett, the company is seeking to significantly expand its e-commerce business on several fronts.

First of all, Hallett said that Brian Clingen, chairman of the board for parent company KAR Holdings, has strongly conveyed a vision to have KAR Holdings become the "biggest seller of vehicles electronically in the world."

Presently, ADESA, ADESA Canada and sister company Insurance Auto Auctions sell about 750,000 cars electronically each year, according to Hallett.

Their goal? Catch Copart, which Hallett said sells 100 percent of its vehicles electronically, numbering more than 1 million units annually, he added.

To help attain that figure, Hallett indicated that Clingen has authorized within the last 30 days that every single lane at ADESA auctions be wired for LiveBlock, which enables dealers located off-site to purchase online vehicles running through the physical lanes.

"Brian wants us to offer every car on LiveBlock, even those that sell for $500 to $1,000," Hallett said.

To help back this up, Hallett said that Clingen and other owners have given the green light to ADESA to bolster its e-business staff. Over the past 18 months, this division has grown from a staff of two to its present number of 35.

"If we need to make it 40 or 50 or whatever, we're allowed to do that because we are going to play aggressively in this space," Hallett noted.

At the same time, Hallett said that Chris Carli has been recently hired as director of worldwide e-business for ADESA and tasked with the responsibility of identifying and expanding a list of international whole-car buyers for ADESA. This is similar to what Dan Oscarson, vice president of marketing for IAA, has done among that company's salvage-auction buyers worldwide.

Carli reports directly to Jason Ferreri, vice president of e-business sales and operations for ADESA.

"We want Chris to learn from Dan how IAA developed its list of international buyers," Hallett said. "So just as Dan does, Chris is traveling the world, going to different countries and meeting with dealers, associations and groups. So far he has gone to eastern Europe, South America, Mexico, China and Dubai."

Hallett added, "We felt it is important that we get into the international market, so we've shopped the world for buyers, so to speak, and this international database continues to grow. We think it's going to provide a level of service and an opportunity for our customers."

When asked by a journalist attending the media briefing if this development might one day lead to the possible establishment in eastern Europe, for example, of a physical sale where dealers there are buying vehicles from eastern Europe as opposed to just buying cars online from North America, Hallett took a second to collect his thoughts.

Then he responded, "We don't have any plans of grandeur other than right now getting as many international buyers as we can who are looking at cars in Canada, Mexico and the U.S., so we can transport them to other countries and hopefully drive the retention for our customers."

Having said that, Hallett then further reflected, "From an international perspective, we're just kind of learning because we just don't know much about these markets. We just don't have that kind of intelligence at this point. There isn't any specific research going on, but I'm hopeful that as we learn more about those markets, and once we educate ourselves, evolution will take care of itself."

Byrd then tackled the issue of competition by examining how ADESA's foray into the international market relates to what other auction companies are doing on the global front.

"We are watching Manheim and how they are announcing regularly what they are doing around the world," Byrd said.

"The world is becoming smaller. We are watching and doing some things, but it's more focused on the technology front, and what we're concentrating on right now is our core business," he concluded.

Auction/Wholesale