It was mid-afternoon on Dec. 5, 2013, and KAR Auction Services chief executive Jim Hallett was at a meeting in a Chicago boardroom.

A person in that meeting was discussing a new product called TradeRev that had been launched in Canada.

“I stopped the meeting, and I said, ‘Go and phone the principals right now, and tell them we’d like to buy their company,’” Hallett said.

Within 60 days of making that phone call, KAR was in discussions with TradeRev to acquire a 50-percent ownership stake in the company.  The deal officially closed in August 2014. 

Three years later, if you talk to Hallett — as Auto Remarketing did last month by phone — you can hear that same excitement about TradeRev in his voice. The reason for that passion goes back to his days as a retail car dealer in Canada at a time when desking deals was quite the arduous task.

“When I first heard about TradeRev, I immediately went back 35 years and thought about, ‘Wow, if I could have had this product when I was desking deals 35 years ago in the retail car business, how much easier, and how much more efficient would my life have been, and how much more profitable would the dealership have been?’” Hallett said.

In those days, when a customer brought a trade-in to the store, the process would involve a walk-around, taking the vehicle for a spin, then looking at price guides and printed auction reports to see what that vehicle was fetching in the lanes.

“And then we’d get on the phone, and we’d phone our five favorite wholesalers, who would all low-ball us, and quite frankly, it wasn’t a very efficient or a very responsible way for appraising cars,” Hallett said. “We were missing a lot of trade-ins, and when you miss a lot of trade-ins, you miss the opportunity to sell a lot of new cars.”

Not to mention, even the task of trading dealer-to-dealer (in today’s market, no less) can be complicated. It involves negotiation, transferring titles, making/ensuring payment, transportation and floor planning.

“Basically, TradeRev does all of that on a mobile app,” Hallett said.

Investment, expansion accelerates

In mid-March, KAR announced it was extending up to $15 million in credit to TradeRev. That investment is being used to foster the continued rollout of the product in additional U.S. markets.

But the growth goes beyond that.

TradeRev has already been introduced and been used in the United Kingdom, with discussions ongoing to launch in mainland Europe.

It has also attracted the attention of commercial consignors, Hallett said.

When he first saw TradeRev, Hallett viewed it as a dealer-to-dealer app.  He considered how KAR could disrupt the dealer-to-dealer segment of the wholesale space, which can see about 10 million units of supply a year.

(Breaking the market down, Hallett said, there are about 10 million units that go to physical auctions each year and 1-1.2 million that go to online platforms. There’s another 20 million that are dealer trade-ins that never make it to online or physical auctions. Assuming dealers keep half of those for retail is where Hallett gets the 10 million figure).

“Although I thought about it, I didn’t really appreciate the appetite that commercial consignors would have for this,” Hallett said.

“We have found commercial consignors now see it as another opportunity to sell their vehicles, especially with this onslaught of off-lease cars,” he said. “It’s like a waterfall event that we talk about. So, first it goes to a closed sale. Then it drops down to an open sale.  Then it would typically go to a physical sale. Now the waterfall is, it goes from a closed to an open, now it’s going on TradeRev with some commercial sellers before it goes to a physical auction.

“So the fact of the matter is, we have as I like to say, three licks of the lollipop because it goes to a physical auction.”

Consignors want to be able to sell cars in every available channel, Hallett said. TradeRev allows them to do so — and quickly, with sales being over and done with in less than an hour. Consignors view TradeRev as another channel to sell the vehicle before having to pay for it to be sent to auction.

Challenge to traditional auction?

Of course, the inevitable question comes up.

“Many have said, ‘Well, aren’t you potentially taking cars out of the physical auctions? … And aren’t you reducing your economics?’” Hallett said, noting the difference in economic between TradeRev and the physical auction.

His answer?

“That’s exactly what I’m doing. And that’s exactly what I want to do,” he said. “I’m willing to take cars out of my physical auction because number one, I have the opportunity to do more business with more dealers in that other 10 million cars that will more than make up for it with the volume.”

After all, KAR’s goal is to have a multitude of available channels and continue to look for new ones. And let the customer decide how he or she wants to transact.

“I believe that it’s not up to KAR or ADESA to dictate how or where a car gets sold. I believe that we should allow the market to determine where the car gets sold and then secondarily allow the customer to choose how the car gets sold,” he said. “So with that said, I believe it’s our responsibility to provide as many channels as we possibly can where a car can get sold and then let the customer and the market decide how that car should get sold.

“So, whether it’s online, whether it’s mobile, whether it’s physical or whether it’s some other market that we haven’t thought about yet — or we haven’t announced yet,” Hallett said, chuckling at the last part, “I think the key is, don’t try to force cars into a channel.

“So with that said … I want to be in every channel and I want to have a presence.”

Editor's Note: Story updated to clairify timing of 50-percent ownership purchase.

Stay tuned to Part II of this series, where we talk with TradeRev CEO and co-founder Mark Endras.