OPENLANE's Kinross Shares Thoughts on Canadian Used-Car Industry

March 06, 2009

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MENLO PARK, Calif. — Providing a glimpse into the latest trends in the Canadian used-vehicle and wholesale markets, OPENLANE president Clive Kinross recently shared his company's perspective on the industry in an exclusive Q&A with Auto Remarketing Canada.

Q: What might be the biggest challenges for the Canadian used-car and wholesale industry in 2009 and how can hurdles these be overcome?

A: "Certainly the biggest challenge we've all been facing in the past year has been the economy. Everyone industry-wide has been affected in some way and, unfortunately, our industry has been hit especially hard.

"The economy is forcing the entire industry to streamline processes and work harder to maintain the same level of business they had before.

"However, where there are challenges, there are also usually great opportunities. At OPENLANE, we've been making an even greater effort to maintain valuable relationships with our dealers and consignors and exceed their expectations to overcome the hurdles that the economy is handing us.

"We're fortunate that our business model of online auctions provides an inherently more cost- and time-efficient way for dealers to buy vehicles than having to travel to the physical auctions. That's an opportunity for us and for dealers and consignors.

"The traditional difficulties of transporting vehicles have been a tremendous opportunity for us, as well. We've been able to use technology to create a more efficient transport network and also to offer a comprehensive plan to dealers and shippers that takes the risk out of having those cars delivered.

"So, we've been able to apply technology to what have been traditional challenges in the past and we've been able to create new opportunities that have helped bring better operational efficiencies throughout the entire sales and delivery process."

Q: Some argue that at points during 2008, Canada's auto market was rather "insulated" from some of the economic chaos in the U.S. On the wholesale side of things, has the volatility from the U.S. spilled over to Canada?

A: "Although Canada may have been insulated during parts of last year, the volatility experienced by U.S. automakers at the end of 2008 has had an effect on the entire industry throughout North America.

"The wholesale side of the business has actually proved to be less volatile than one might think. When people are having trouble affording new vehicles or getting loans approved for new cars, the obvious solution is to buy a used car. Although the whole industry has felt the effects of the market, the wholesale side has been less hard hit than the new car market.

"I believe the new-car market dropped last year by 38 percent but the used car dipped only 9 percent. The ability to buy and sell the vehicles online helps save money, too, because it keeps dealers at the dealership managing the business rather than spending the money it costs to travel to the auction."

Q: What is the auction climate like in Canada at this point? Any improvement from last year?

A: "The auction climate throughout all of North America remains full of promise and opportunity. The reality now is that it is difficult for many consumers to afford new cars. With that said, dealers are now looking to buy used cars and dealers across Canada and the U.S. and they still need cost- and time-efficient ways to procure used inventory for their lots to meet their needs.

"Dealers are finding our online auction to be even more advantageous because it allows them to remain in the office, and focus on selling cars while avoiding all the hassles that come with traveling to physical auctions.

"Despite the current state of the economy, our adoption is continuing across Canada. We have been seeing our highest sales numbers yet, which is an excellent indication that online auctions are becoming a more widely accepted practice for buying and selling used cars."

Q: The rise and fall of gas prices often dictated what segments performed well at auctions in the U.S. last year. To what degree is there segmentation on the wholesale side in Canada?

A: "The volatility of gas prices certainly played a factor in what kinds of vehicles consumers were buying last year. Obviously, SUV, truck and minivan sales were the most affected, while car sales were a bit more stable throughout the year. Because our online auctions are technology based, we've been able to easily track and compile data on sales over the past year in particular. Last month we introduced the OPENLANE Market Index, a monthly report tracking sales vehicle interest trends throughout the industry.

"The statistics in the index are meant to serve as an industry benchmark for both pricing and interest. The index is intended to be a monthly resource for the wholesale industry that will reflect and track trends in the industry over time

"Across North America, sales prices decreased for all segments throughout 2008, with the car segment declining the least overall."

Q: How important has the online channel become for the Canadian wholesale market? To what degree are buyers and auctions utilizing this channel?

A: "Businesses are always looking to find more innovative, efficient and cost-effective ways of doing business to remain competitive and the automotive industry is no exception. The numbers of wholesale vehicles that are listed and sold online in Canada are increasing significantly every year.

"At OPENLANE, we think this is going to continue as the value proposition resonates more with both remarketers and dealers and as they search for additional ways to make their businesses more efficient and cost-effective. Ultimately, both dealers and consignors alike are reaping numerous benefits from online auctions.

"From a consignors' perspective, the primary benefits of our OPENLANE auction over a physical auction include lower transportation costs, less wear and tear on vehicles, faster time to market and a wider geographic market of bidding dealers.

"From a dealers' perspective, the online process also cuts time and cost from the equation as it reduces travel costs as well as time away from the dealership. For example, through OPENLANE, dealers can search through a nationwide pool of vehicles at their convenience 24/7 — often before the vehicles are made available at the physical auctions.

"And especially in Canada, where there are dealers located in remote locations, online auctions provide them with a way to have the same access to inventory and erase and geographical hurdles that previously got in the way. Transportation is also key as many of the vehicles move from the Eastern population centers to the Central and Western regions of Canada.

"Finally, because the auction costs online are substantially lower than at a physical auction, both the buyer and seller can achieve a better price than they would through a physical auction."

Q: What are some of the biggest external economic factors impacting the Canadian used-car industry and what role do they play?

A: "Certainly the problems that the U.S. economy is facing are spilling over to other countries on a global basis, and Canada is no exception. Economies and industries across the globe have become so interwoven that it's difficult at this point for one sector to not affect others. The financial and housing industry meltdowns have made it more difficult for people to get loans and buy new cars.

"The difficulties auto manufacturers in the U.S. are affecting Canadian car dealers. High gas prices make it more expensive to haul cars across great distances and to remote areas here in Canada. Fortunately, our business is focused on bringing greater efficiencies and cost cutting to processes in the auto industry that have traditionally been difficult and costly."

Q: Several dealer organizations have supported the government pledge to create the Canadian Secured Credit Facility and devoting a full section of its budget to the auto industry. How much will the federal government's recent steps to help the liquidity crisis in the Canadian auto market actually help?

A: "This should help with demand for both new and used vehicles in Canada. It's hard to predict how long the current economic conditions will last, but easing of credit markets will help consumers buy and replace vehicles more quickly."

Q: Any other thoughts or commentary you would like to share about where the auto industry in Canada could be headed this year?

A: "We see transportation as a major area within the North American remarketing sector that will provide a host of opportunities for streamlining operations and increasing cost savings.

"Everyone in the automotive industry must adapt to figure out ways to increase efficiency and reduce costs. Some transportation companies that haven't found ways to adjust their pricing and adapt yet, and they are unfortunately going out of business.

"With our acquisition of the CarsArrive Network last year, OPENLANE now offers automotive dealers, consignors and carriers with the most comprehensive and efficient transportation management system on the market today. In effect, OPENLANE has taken all the hassle out of transporting used vehicles by managing the risk for you.

"That deal significantly augmented our existing transportation business, and we've been able to demonstrate our ongoing commitment to providing customers with an end-to-end solution for buying, selling and transporting wholesale vehicles.

"We're able to do this because we're not asset-based and do not own trucks, so we can dedicate all of our resources to providing a stable, guaranteed transportation network with the ability to track vehicle location in real-time.

"We will continue to focus on building out our services within transportation to provide dealers with the most comprehensive transportation options for their purchased vehicles."

For more information, visit www.openlane.com.

AR Canada