Zach Hallowell, vice president of Manheim Digital, is back on the Auto Remarketing Podcast to discuss the top trends he noticed when the auto auction industry went mostly, if not entirely, digital for two months.
To listen to this episode, click on the link available below, or visit the Auto Remarketing Podcast page.
Download and subscribe to the Auto Remarketing Podcast on iTunes or on Google Play.
The National Automobile Dealers Association, the American International Automobile Dealers Association and the Auto Care Association were among the more than 200 diverse trade associations and other groups calling for Congress to provide temporary and targeted liability relief legislation through an initiative pushed by the U.S. Chamber of Commerce.
The U.S. Chamber of Commerce asked lawmakers to “quickly enact temporary and targeted liability relief legislation related to the COVID-19 pandemic.” As businesses start to reopen, NADA, AIADA and the other groups said that employers simply want to know that if they take reasonable steps to follow public health guidelines, they will be protected against “needless lawsuits.”
The letter emphasized the risk of “opportunistic” lawsuits posing a significant barrier for businesses and in their ability to bounce back from the economic crisis.
“During times of past crises, Congress has passed liability protections on a bipartisan basis, and must do so again,” said Harold Kim, president of the U.S. Chamber Institute for Legal Reform.
“The U.S. Chamber and the Institute for Legal Reform are leading this coalition to urge lawmakers to protect businesses against the acute economic threat of lawsuits,” Kim continued in a news release.
U.S. Chamber of Commerce executive vice president and chief policy officer Neil Bradley elaborated about the risk businesses like dealerships currently face and why this policy is needed.
“Temporary, targeted and timely liability relief is critical as employers work to keep their employees and customers safe and reopen their doors as America moves towards recovering from this crisis,” Bradley said. “Businesses who follow public health guidelines shouldn’t have to worry about lawsuits. Without temporary liability protections many companies face a daunting choice of either staying closed and risking bankruptcy or reopening and risking a business-crippling lawsuit.”
“We must be focused on a bipartisan strategy to get the American economy back on track safely and sustainably, and unwarranted lawsuits against businesses will hinder economic recovery,” Bradley continued. “As Congress and the White House consider their next relief package, the Chamber believes it should include temporary safe harbor protections from lawsuits during the COVID-19 crisis.”
Black Book’s analyst team might not have rested much during the Memorial Day weekend, judging by the robust information contained in its newest COVID-19 Market Update released on Wednesday morning.
From discussing how the Hertz bankruptcy might impact wholesale volume to a quartet of insights from dealers to the latest price movements. Black Book covered a lot of automotive territory in this update.
Analysts began with highlighting how auction volume appears to have stabilized as locations are navigating through challenges associated with on-site activities and reduced workforces. After watching volume drop by 80% by the end of March because of the coronavirus pandemic, Black Book said most recent sales is nearly at year-ago levels.
“It appears that we have some stability now, as throughput of wholesale auctions is limited by closure of most physical auctions and reduction of staff by major auction companies,” analysts said.
As far as prices, Black Book indicated that its volume-weighted data showed overall car segment values increased by 0.12% this past week. Analysts determined the majority of car segments experienced increases or stability, except for near luxury car and prestige luxury car segments.
“Near-luxury car is a segment with a high lease penetration rate, and we project that depreciation is likely to worsen as consumers who took advantage of lease extensions begin to return their vehicles,” analysts said. “Due to the high MSRPs of the prestige luxury car segment, it is typical to see them depreciating during this time of year.”
Black Book pointed out values for compact cars continued to trend upward for a second week in a row, posting a 0.72% increase.
“This segment was hit hardest at the onset of the pandemic as fuel prices were falling quickly, but this segment has now seen an increase in demand due to its low price point,” analysts said.
Again, according to volume-weighted information, Black Book determined overall truck values (including pickups, SUVs, and vans) decreased by 0.23% last week.
Analysts noted that small pickups increased for the second week in a row, adding that the minivan segment saw large declines for another week “as large supplies on the lanes have continued to depress prices in a segment that has a niche demand.”
As Auto Remarketing recapped in this report, Hertz filed for Chapter 11 bankruptcy protection late Friday. Black Book discussed that matter as well as the significant decrease in domestic travel on how rental-risk units might enter the wholesale space.
Black Book referenced a projection from the International Air Transport Association that indicated air travel will not return to pre-COVID-19 levels until after 2023.
“This puts tremendous financial pressure on rental companies that rely on air travel to reduce both their current fleet and future acquisitions,” Black Book said.
“In addition to Hertz, we expect other rental companies to reduce their fleet during the summer and fall months to match lower demand for rentals,” Black Book continued while also predicting this strategy will result in more than 250,000 additional rental units hitting the wholesale market during the next six months.
“Note that this is a base-case scenario in which rental companies (excluding Hertz) can gradually reduce their fleet instead of rapid fire-sale,” analysts added.
Black Book discussed even larger volume numbers when turning its attention to the off-lease segment.
Earlier this year, analysts projected lease returns to hit a record above 4.1 million units.
“Once the pandemic was underway and most manufacturing stopped, OEMs started to encourage lease extensions in order to push returns further into 2020 and to be able to provide replacement vehicles,” Black Book said.
“As a result, we project at least 560,000 additional units in the second part of 2020 (compared to the pre-COVID-19 estimates) due to a slowdown in sales in April/May, along with expected turn-ins of the lease extensions,” analysts continued.
While the firm didn’t offer specific figures, Black Book added that increased repossessions due to deteriorating economic conditions will help to increase wholesale volume, too.
When store personnel wasn’t helping buyers to complete delivery of their next vehicle, some shared a conversation with Black Book representatives. Analysts recapped a few of the anecdotes they heard.
“Memorial Day weekend has historically been a big weekend for car sales, and the dealers we spoke with were hoping this year would be no different. We expect to see continued buying on the lanes post-Memorial Day to backfill sold retail units,” Black Book said.
“Dealers are continuing to remain ‘cautiously optimistic’ that the price stability and uptick in retail sales will last,” Black Book continued.
“Hesitancy remains when it comes to sending trade-ins or unwanted inventory to the auction for disposal,” Black Book went on to say. “But with low wholesale values, the auction has become a good source of inventory.”
Analysts added one more remark that’s pertinent to the situation facing franchised dealerships.
“After two months without production lines running, concern continues to build for new-car dealers about the level of inventory and how long it will be before they receive new units from manufacturers,” Black Book said.
Compliance expert Randy Henrick, formerly of Dealertrack and now with Ignite Consulting Partners, offered insight about potential dealership advertising pitfalls during the COVID-19 pandemic during this episode of the Auto Remarketing Podcast.
Henrick also touched on a few of the compliance differences that can come into play when a vehicle is delivered somewhere else other than the dealership.
To listen to this episode, click on the link available below, or visit the Auto Remarketing Podcast page.
Download and subscribe to the Auto Remarketing Podcast on iTunes or on Google Play.
For a moment, remember back to high school, where you may have had a science fair project to complete.
It probably took some experimentation to find out a solution and learn what worked, and what didn’t.
That’s not too different than the task that has faced auto auctions in recent weeks, says National Auto Auction Association chief executive Frank Hackett.
Auctions were forced to go all digital at the outset of the pandemic, and while the industry’s two largest chains remain in simulcast-only mode, many independents have since reopened in-person, in-lane sales.
Interviews with numerous corporate and independent auto auction leaders across the industry reveal a cautious decision-making process that often drills down to intricate details of determining whether or not — and how — to safely resume in-person auction sales.
“This has been kind of a science project,” Hackett, the NAAA CEO, said in an interview on May 18.
“I think at this point people are trying to figure out what they're going to do and have used it as a time to experiment with more simulcast versus in-lane, because they've been forced to use simulcast,” Hackett said.
But he questions whether simulcast-only sales are fast enough to meet dealer demand and says the industry will eventually move back toward in-person sales.
“I think that this has been a good time for all of us to really experiment with what people have wanted to experiment with,” Hackett said. “But at some point, I think when we look at speed, we’re going to come back to brick-and-mortar sales because of speed and time and volumes.
“And I think just the overall excitement, I think people are going to miss that,” he said.
Hackett sees the approaches being different across the industry as auction locations and auction companies continue to experiment. But he doesn’t see this being the end of the traditional brick-and-mortar sale.
In fact, this month has marked the start of several independent auctions restarting in-person sales, with many putting safety and social-distance measures in place.
Motley’s Richmond Auto Auction held simulcast-only sales for eight weeks, before restarting its first in-lane sale in mid-May, said general manager Wyatt Carter.
The sale was RSVP-only, and the Virginia auction reduced its capacity by more than 50%.
The auction has restricted access to where dealers are not allowed in the building, instead setting up remote check-in stations at the front of the building where dealers, remaining outside, can pick up bidder badges, day passes and so forth, Carter said.
It’s designed to keep attendees socially distant, as well.
“We felt like enclosed spaces was probably one of the biggest risks we’d be running,” Carter said. “We don’t feel comfortable at this point bringing more people in the building, even if it is legal” so as to not expose its employees.
Once dealers check in, they are allowed access to the yard and the lanes, where there are social-distance marks and stations available for hand sanitization, Carter said. The auction is also requiring face masks.
In an example of just how granular Richmond’s approach has been, it is allowing only one use of a pen before it has to be sanitized, eliminating another potential touch point.
“So, we’re really trying to keep down the touches and keep people spread out and safe,” Carter said.
And when it comes down to enforcing and implementing such measures, a lot of it boils down to common sense, says Justin Brown, general manager at Missouri Auto Auction, which resumed in-lane sales earlier this month after eight weeks of online-only.
For example, at Missouri, instead of meeting with all 30-40 drivers at once, Brown individually meets with smaller group of drivers, who are appropriately spaced apart at the top of each of the auction’s four lanes, while others wait outside. Vehicles are also locked when they are being driven through the lane.
Brown also emphasized how important it has been to properly communicate with dealer customers during the pandemic to explain the auction’s protocols, including those around site visits to preview inventory.
“That’s just setting the expectation of your customer before they get here and not (having) a big surprise … As long as you communicate and set the expectation, they (have been) pretty good with it,” Brown said.
And he would later point out, “even in normal times, good communication goes a long way.”
So does relationship building and sharing of best practices with peers.
At Corpus Christi Auto Auction, in-person sales resumed in a limited capacity on May 1, the same day the state of Texas opened back up.
General manager Hunter Dunn was able to get advice from state and local law enforcement, thanks to relationships the auction had built, having previously allowed Texas state troopers, the Nueces County Sheriff’s Department and Corpus Christi Police Department to train at the auction.
“So, I reached out to all three of them and asked them what we could do, what we should be doing, what we shouldn’t be doing,” Dunn said.
“I took the advice from all three of them, and I explained to them what we were interested in doing,” he said. “And obviously, they’re not the ones that could give me the OK or not. But after they reviewed everything, they said, ‘Hey, there's no reason why you guys can't move forward.’”
Corpus Christi AA has put a number of precautions and measures in place, such as cleaning logs, “thoroughly” cleaning high-touch areas several times each day, closing the cafeteria/food service and limiting attendance
The auction also reached out to dealers and asked that they not bring additional parties to the auction, like their drivers or transporters.
Dunn also said the auction is thankful to be in the ServNet Auction Group, where it has gleaned best practices.
(Missouri Auto Auction is also a member of ServNet).
“ServNet has been instrumental, giving us information on how to handle the situation and steps and procedures to opening back up full time,” Dunn said. “To have that group and that leadership at our disposal has been great.”
Speaking of ServNet, that auction group shared an update on May 18, detailing several ServNet members who began holding live sales earlier in the month and the various safety protocols its members had put in place.
For example, steps like realigning traffic flows, utilizing Plexiglass sneeze guards, attendance limits, social-distancing floor marking, training personnel on adjustments and gathering masks, gloves and pens, ServNet said in the update.
As of that May 18 update, 12 of the 22 ServNet auctions were holding live sales this month, with at three more planning to do early next month. All of ServNet’s members were holding regular online auction sales.
“ServNet auctions have maintained a strong presence in the market since the onset of the COVID-19 pandemic, holding online-only sale events,” ServNet executive director John Brasher said in a news release. “But we are delighted to report that many of our member auctions are going live, meeting buyers mask-to-mask if not face-to-face, in the auction arena, and recording excellent sale results.”
Of course, that excitement comes with caution and the aforementioned preparation. ServNet members are not rushing in, Brasher said.
“As eager as ServNet auctions are to return to live sales, they are all proceeding with vigilance and caution,” he said. “All auctions in the group are going to great measures to protect their customers and employees, holding extensive meetings, drafting safety plans and working with local law enforcement and health agencies to ensure that auctions are held safely and responsibly.”
The decisions regarding in-person, in-lane sales have been different at ADESA and Manheim, the two largest corporate auction chains.
ADESA continues to operate simulcast-only at most of its locations, with no vehicles running through the lanes. The auction company is not currently operating in-person live auction sales.
(In its latest update, ADESA has simulcast-only sales at all of its U.S. and Canadian locations, with the exception of its two auctions in Massachusetts. Both of those are Simulcast+ sales, which uses an automated digital auctioneers).
Most ADESA locations are allowing buying inventory previews (by appointment only), though some are not.
A full auction-by-auction rundown can be found here:
https://www.adesa.com/covid19/
In an interview on May 12, leadership of parent company KAR Global was asked what the ideal scenario would have to be for ADESA to re-open a traditional, physical, in-person sale.
KAR chief executive officer Jim Hallett had boiled it down to three key priorities, in order: First priority is employee safety above all else. Second is adhering to local and state laws, which vary wildly.
“We’re going to stay legal,” Hallett said in the May 12 interview. “We are not going to violate, and we’re not going to try to look for a loophole to try and prove that we’re an essential business.”
Third, he said, “we’re going to listen to our customers. And we’re going to see what our customers want and how they want to be serviced.”
When the time comes for that to happen, “it remains our goal to have the safest environment in the industry, which means we would like to run fewer cars through the block,” said KAR chief financial officer Eric Loughmiller in that same interview.
Hallett added: “Even before COVID (hit), I’m on the record from last year of saying that we’ve got to make this safer … we continue to push safety in the lanes. We don’t believe we should be running cars through the lane.
“And so, during this COVID period, there’s been no cars running through the lanes. And we’ve proven and demonstrated that we haven’t lost anything as a result of that. We may have gained things that we don’t know about,” Hallett said. “And our hope would be that we don’t run any cars through our lanes as we return to whatever form of auction we return to, whether it be simulcast, Simulcast+ or physical lanes, that we don’t run the car through the lane.”
Manheim also continues to operate in an all-digital sale environment, running Simulcast-only sales as allowed by local and state directives.
In an update Wednesday, Manheim president Grace Huang said that, “with our lots at full capacity, Manheim locations have begun providing access for clients to preview inventory on a limited basis. To date, two-thirds of our locations are participating with expanded viewing days and times while maintaining strict safety and compliance protocols.”
Thirteen auctions are also using Manheim’s LotVision wireless tracking technology, with the goal of making that 26 by the end of the year, she said.
“We fully appreciate that our move to an all-digital auction operation has been a significant adjustment for clients, from buying on Simulcast and paying for vehicles online to using our Remote Seller tool to rep vehicles,” Huang said in the update.
“We also realize that we can do even more to provide the vehicle information necessary to instill buyer confidence through our condition reports and imaging. In response, Manheim is accelerating our investment in these areas with plans to roll out key enhancements in the coming months,” she said. “Additionally, working closely with our clients, we are exploring other ways to continue improving the digital auction experience.
“As companies across the country and within our own industry begin to reopen, we are seeing varying methods for returning to business. At Manheim, our approach is guided by CDC guidelines; informed by Cox Automotive’s pandemic data; and driven by our core values to always do the right thing for our team members, clients and communities,” Huang said.
“As state and local directives allow, we will continue to adjust our operations to make it more convenient for our clients to conduct business. Should further COVID-19-related developments alter our plans, we will adapt accordingly.”
Alan Lang, divisional vice president at Manheim, said in an interview earlier this month that one of the key pieces in decision-making when it comes to in-person sales, “is how and when will we be comfortable with allowing dealers to go shoulder-to-shoulder in the lanes.”
He added: “For right now, until we start to see massive testing occur in specific marketplaces and across various regions, a treatment, some of the vaccines that are in the works, it’s going to be a period of time.
“It doesn't mean that we're not going to look at, and we are looking at, options to allow bidding, but that would be on a limited basis,” Lang said.
“We're certainly evaluating and looking at some of the safety protocol options through Kenny’s team to (evaluate) how can we allow enough dealers in the lane that it makes sense, where they’re not violating social distancing recommendations by the health experts,” he said, referring to Kenny Jones, who is the senior director of environmental, health and safety at Cox Automotive and participated in the interview, as well.
“It’s something we're looking at daily. We’re looking at our facilities, we're seeing if it's possible to do that in a safe manner,” Lang said. “I think the timing is going to really be predicated on what we're seeing with the data and what we're physically able to do within the facilities.”
Manheim also would need to consider, “what's the number of people that can come into the lanes where, where they can physically provide distancing, what kind of barriers may we need in the lanes to allow them to come in and still be able to bid and respect that social spacing, what kind of protections such as a sneeze guards, plexiglass guards around the blocks to protect the auctioneers, block clerks, etc.,” Jones said.
Jones emphasized the importance of, “making sure all those are in place and available and making sure that the data supports that location being able to do that and handle that.”
The analytics team at Cox Automotive, led by chief economist Jonathan Smoke, has built a database dissecting the pandemic level in every U.S. county, Jones said in a separate interview for the Auto Remarketing Podcast.
The company then makes subsequent decisions based on Smoke’s model detailing the condition of the specific municipality and surrounding area where a business would operate.
The model considers such conditions as hospital beds available, fatalities, cases/new cases, etc. There are four levels of decreasing seriousness: red, orange, yellow and blue, Jones said. (He emphasized that blue is still a pandemic level and that it doesn’t mean “back to business as usual.”)
“Jonathan’s model is really the big factor in those decisions. We obviously have to go with the government mandate, but we follow those individual locations based on that data model that Jonathan built,” Jones said.
Though he was explaining the decision-making process from a Cox Automotive enterprise-level viewpoint, the same sentiment would be behind deciding whether or not to open specific in-person physical auction sales.
When it comes time to potentially open physical in-person Manheim sales, such decisions would be made on a market-by-market, auction-by-auction basis, Jones confirmed.
“We’ll base (the decisions to re-open) on that data that Jonathan’s providing us and then each one of the pandemic levels, whatever the needs are for that market and what pandemic level they are,” Jones said.
“We’ll put the appropriate safety protocols in place so that people can safely re-enter the Manheim auctions and follow the appropriate protocol for that market,” he said. “We’re not going to try to make Omaha, Neb., comply to New York City rules. We’ll make sure it’s Omaha, Neb., rules.”
Used-car sales this month are likely to be about two-thirds of what they were a year ago, but more than double the total from April.
That’s according to a forecast released Tuesday by the ALG division of TrueCar, which is projecting 2,342,597 used sales for May.
That marks a 34% year-over-year dip but a 116% month-over-month gain, ALG said.
“Moving forward, there’s a lot of tailwinds for used vehicles,” Jonathan Banks of J.D. Power Valuation Services said in a market update webinar on Wednesday. “The economy obviously drives more people toward value. We’re also seeing more consumers not leaving the market … most people are just deferring their purchases, not many people are saying they’re taking themselves out of the market completely.
“There are also several big regions that have yet to recover from a used standpoint, including New York,” he said. “So there’s a lot of tailwinds to suggest that we’re going to see a continuation of this positive movement in the used market.”
Such progress aligns with what Cox Automotive noticed in mid-month update of the Manheim Used Vehicle Value Index.
In that index report, which was released May 18, Cox analyzed Dealertrack transaction volumes on a same-store basis.
There was a 6% year-over-year decline in used-car retail sales for the week ending May 14. At the end of March, they had dropped 67%.
In a Smoke on Cars report released Tuesday, Cox Automotive chief economist Jonathan Smoke wrote: “Auto sales and our leading indicators show that May has continued to build upon the improvement that began in April. Used-vehicle values have started to recover.
“We estimate that new-vehicle sales through last Wednesday are down 32% year over year, while used-vehicle sales are down only 6% year over year,” he said. “Though both metrics are down, they are much improved from the past couple months.”
As industry experts predicted might happen, late on Friday afternoon Hertz Global Holdings announced it and certain of its U.S. and Canadian subsidiaries have filed voluntary petitions for reorganization under Chapter 11 in the U.S. Bankruptcy Court for the District of Delaware.
According to a news release, Hertz said the company still has $1 billion in cash on hand to support continuing operations.
“The impact of COVID-19 on travel demand was sudden and dramatic, causing an abrupt decline in the company’s revenue and future bookings,” the company said in the announcement going into what normally would be a busy Memorial Day weekend. “Hertz took immediate actions to prioritize the health and safety of employees and customers, eliminate all non-essential spending and preserve liquidity.
“However, uncertainty remains as to when revenue will return and when the used-car market will fully re-open for sales, which necessitated today’s action,” the company continued. “The financial reorganization will provide Hertz a path toward a more robust financial structure that best positions the Company for the future as it navigates what could be a prolonged travel and overall global economic recovery.
Officials indicated Hertz’s principal international operating regions including Europe, Australia and New Zealand are not included in the U.S. Chapter 11 proceedings. In addition, they added that Hertz’s franchised locations, which are not owned by the company, also are not included in the Chapter 11 proceedings.
The announcement also indicated all of Hertz’s businesses globally — including its Hertz, Dollar, Thrifty, Firefly, Hertz Car Sales and Donlen subsidiaries — are open and serving customers.
All reservations, promotional offers, vouchers, and customer and loyalty programs, including rewards points, are expected to continue as usual, according to the company.
“Hertz has over a century of industry leadership and we entered 2020 with strong revenue and earnings momentum,” said Hertz pesident and chief exeuctive Paul Stone, who just took over the position last Monday. “With the severity of the COVID-19 impact on our business, and the uncertainty of when travel and the economy will rebound, we need to take further steps to weather a potentially prolonged recovery.
“Today’s action will protect the value of our business, allow us to continue our operations and serve our customers and provide the time to put in place a new, stronger financial foundation to move successfully through this pandemic and to better position us for the future,” Stone continued in the news release.
“Our loyal customers have made us one of the world’s most iconic brands, and we look forward to serving them now and on their future journeys.”
As part of the reorganization process, the company explained that it will file customary “First Day” motions, which should allow it to maintain operations in the ordinary course.
Hertz said it intends to:
—Continue to provide the same vehicle quality and selection
—Pay vendors and suppliers under customary terms for goods and services received on or after the filing date
—Pay its employees in the usual manner and to continue without disruption their primary benefits
—Continue the company’s customer loyalty programs.
As mentioned previously, Hertz said it had more than $1 billion in cash on hand to support its ongoing operations as of its bankruptcy filing date.
Depending upon the length of the COVID-19 induced crisis and its impact on revenue, the company acknowledged that it may seek access to additional cash, including through new borrowings, as the reorganization progresses.
Hertz emphasized that it was on a “strong” upward financial trajectory prior to the COVID-19 pandemic, including 10 consecutive quarters of year-over-year revenue growth and nine quarters of year-over-year adjusted corporate EBITDA improvement.
In January and February, the company reported that it increased global revenue 6% and 8% year-over-year, respectively, driven by higher U.S. car rental revenue.
When the effects of the crisis began to manifest in March, causing an increase in car rental cancellations and a decline in forward bookings, Hertz stressed that it moved quickly to adjust.
Hertz explained that it took action to align expenses with significantly lower demand levels by closely managing overhead and operating costs, including:
—Reducing planned fleet levels through vehicle sales and by canceling fleet orders
—Consolidating off-airport rental locations
—Deferring capital expenditures and cutting marketing spend
—Implementing furloughs and layoffs of 20,000 employees, or approximately 50% of its global workforce.
Hertz also reiterated that it actively engaged with many of its largest creditors to temporarily reduce the required payments under the company’s vehicle operating leases.
Although Hertz negotiated short-term relief with such creditors, the company conceded that it was unable to secure longer-term agreements.
Additionally, the company pointed out that it sought assistance from the U.S. government, but access to funding for the rental-car industry did not become available.
Hertz noted White & Case is serving as legal advisor, Moelis & Co. is serving as investment banker and FTI Consulting is serving as financial advisor.
Additional information for customers regarding Hertz’s restructuring is available www.hertz.com/drivingforward. Court filings and information about the claims process for suppliers and vendors are available at https://restructuring.primeclerk.com/hertz, by calling the company’s claims agent at (877) 428-4661 (toll-free in the U.S.) or (929) 955-3421 (for parties outside the U.S.) or emailing hertzinfo@primeclerk.com.
KAR Global got a big shot in the arm to help its operations, technology, digitization and development amid the recovery.
The company announced a $550 million strategic investment Tuesday led by Apax Partners-advised funds that KAR’s chief executive says will “help us continue to support our global customers and further accelerate our digital transformation.”
KAR plans to use the proceeds “to expedite the resumption of operations to meet market demand, sustain the company’s technology platforms and development pipeline and navigate the industry and economic recovery,” the company said in a news release.
“KAR took early and decisive steps in response to COVID-19 to protect the safety of our employees and customers, preserve our capital position and keep our operations moving forward,” KAR chairman and CEO Jim Hallett said in a news release.
“This transaction will help us continue to support our global customers and further accelerate our digital transformation, Hallett said. “Apax is the right strategic partner for our company, employees and stockholders, and their investment reinforces the strength of our brands, market position and long-term strategy for growth and expansion.”
There is a 7% divided on the newly issued perpetual convertible preferred KAR stock “which shall be paid in-kind for the eight quarters following closing, and thereafter in cash or in-kind at KAR’s option,” KAR said in a news release.
The initial conversion price per share on the stock is $17.75. That’s roughly a 42% premium to where KAR’s stock closed Friday ($12.52 per share).
In addition to funds advised by global private equity Apax Partners, which led the investment, Periphas Capital, L.P. also participated in the investment.
“KAR is an internationally recognized leader in wholesale remarketing with a strong track record of innovation,” said Roy Mackenzie, partner at Apax Partners, said in the release.
“The company’s market leading digital platforms and investments in data analytics uniquely position them to thrive in the new digital normal,” Mackenzie said. “We look forward to partnering with KAR’s progressive and entrepreneurial management team to transform their industry and drive long-term value for all stockholders.”
The data series used by KAR Global Analytical Services goes back to 1994 — another time when Major League Baseball wasn’t being played, but for a far different reason than the current coronavirus pandemic.
When KAR Global chief economist Tom Kontos and his team finalized their wholesale price information for March and April, they found a decline never spotted previously in 26 years dating back to when labor disputes resulted in canceling of the World Series.
After a strong start to 2020 during January and February, Kontos explained the COVID-19 crisis wiped out virtually all gains in wholesale prices. In his latest Kontos Kommentary released just before Memorial Day weekend, Kontos indicated March and April average prices fell by a cumulative 15.1% after peaking in February.
And he pointed out April’s 16.3% year-over-year drop is the largest ever recorded by KAR Global’s team.
According to KAR Global Analytical Services’ monthly analysis of wholesale used vehicle prices by vehicle model class, wholesale prices in March averaged $10,827 — down 4.5% compared to February and 2.4% relative to March of last year.
In April, average prices dropped another 11.1% compared to March and, as previously mentioned, that record-setting 16.3% plummet versus last April.
Similarly, Kontos indicated prices by major seller type dropped significantly by April.
He noted average wholesale prices for used vehicles remarketed by manufacturers actually rose 4.3% month-over-month in March due to pre-crisis price strength in early March. But April’s performance “more than wiped out” that increase as Kontos said the decline came in at 12.9% last month, leaving prices off by 8.2% year-over-year.
Kontos mentioned prices for fleet/lease consignors softened 3.8% sequentially in March and dropped another 13.9% in April, leaving prices for those customers down by 20.0% annually.
Finally, Kontos added that average prices for dealer consignors decreased 3.4% and 10.5%, respectively, in March and April. Dealers watching what they could get at auction off by 14.9% relative to April of last year.
| Average | Price | ($/Unit) | Latest | Month Versus | |
| March 2020 | February 2020 | March 2019 | Prior Month | Prior Year | |
| Total All Vehicles | $10,827 | $11,338 | $11,095 | -4.5% | -2.4% |
| Total Cars | $8,039 | $8,360 | $8,656 | -3.8% | -7.1% |
| Compact Car | $6,343 | $6,535 | $6,716 | -2.9% | -5.6% |
| Midsize Car | $7,065 | $7,317 | $7,564 | -3.4% | -6.6% |
| Full-size Car | $7,554 | $7,765 | $7,996 | -2.7% | -5.5% |
| Luxury Car | $11,913 | $12,658 | $13,144 | -5.9% | -9.4% |
| Sporty Car | $14,105 | $13,867 | $14,340 | 1.7% | -1.6% |
| Total Trucks | $12,971 | $13,528 | $13,145 | -4.1% | –1.3% |
| Minivan | $8,095 | $8,286 | $8,408 | -2.3% | -3.7% |
| Full-size Van | $12,219 | $13,173 | $13,283 | -7.2% | -8.0% |
| Compact SUV/CUV | $10,691 | $10,995 | $11,322 | -2.8% | -5.6% |
| Midsize SUV/CUV | $11,679 | $12,273 | $11,371 | -4.8% | 2.7% |
| Full-size SUV/CUV | $16,165 | $16,348 | $14,214 | -1.1% | 13.7% |
| Luxury SUV/CUV | $17,566 | $18,710 | $18,281 | -6.1% | -3.9% |
| Compact Pickup | $10,926 | $11,268 | $10,082 | -3.0% | 8.4% |
| Full-size Pickup | $15,949 | $16,385 | $16,244 | -2.7% | -1.8% |
Source: KAR Global Analytical Services.
February data revised.
| Average | Price | ($/Unit) | Latest | Month Versus | |
| April 2020 | March 2020 | April 2019 | Prior Month | Prior Year | |
| Total All Vehicles | $9,621 | $10,827 | $11,489 | -11.1% | -16.3% |
| Total Cars | $6,912 | $8,039 | $8,942 | -14.0% | -22.7% |
| Compact Car | $5,221 | $6,343 | $6,863 | -17.7% | -23.9% |
| Midsize Car | $5,880 | $7,065 | $7,724 | -16.8% | -23.9% |
| Full-size Car | $7,217 | $7,554 | $7,983 | -4.5% | -9.1% |
| Luxury Car | $10,702 | $11,913 | $13,862 | -10.2% | -22.8% |
| Sporty Car | $12,890 | $14,105 | $14,790 | -8.6% | -12.8% |
| Total Trucks | $11,683 | $12,971 | $13,596 | -9.9% | -14.1% |
| Minivan | $7,279 | $8,095 | $8,393 | -10.1% | -13.3% |
| Full-size Van | $8,846 | $12,219 | $13,398 | -27.6% | -34.0% |
| Compact SUV/CUV | $9,661 | $10,691 | $11,367 | -9.6% | -15.0% |
| Midsize SUV/CUV | $10,381 | $11,679 | $11,720 | -11.1% | -11.4% |
| Full-size SUV/CUV | $12,794 | $16,165 | $15,203 | -20.9% | -15.8% |
| Luxury SUV/CUV | $16,472 | $17,566 | $19,045 | -6.2% | -13.5% |
| Compact Pickup | $10,299 | $10,926 | $10,655 | -5.7% | -3.3% |
| Full-size Pickup | $14,618 | $15,949 | $16,914 | -8.3% | -13.6% |
Source: KAR Global Analytical Services.
Digital retailing may give dealers an avenue for more efficient operations and profitability — particuarly when it comes to F&I, often a question mark in discussions around online car sales.
That’s according to a dealer impact study conducted by Roadster in partnership with the National Automobile Dealers Association that surveyed 236 dealers from May 6-8 in hopes of answering these questions:
In short, yes and yes.
Michele Denogean, chief marketing officer at Roadster, spoke to Auto Remarketing about the study earlier this month.
She said that, “digital retailing deals can be profitable. In some cases, it can be more profitable. (In terms of) the questions about profitability, it's really what you do with it.
“But there is this huge opportunity from an efficiency standpoint for dealers to get their sales team to be a lot more productive and sell more cars,” Denogean said.
One of the items that the Roadster + NADA Dealer Impact Survey examined was the percent of dealers whose front-end gross profits moved positively or negatively in April versus pre-COVID-19 level.
On the new-car side, among dealers who were digital retail-enabled, about half saw a positive impact and close to 40% saw a negative impact.
Among those with no digital retail, under 30% had a positive impact and under 20% had a negative impact. In total, just under half had a positive impact and 20% had a negative impact.
“When it came to front-end gross, there are two things that I would call out. One is that the slice of people that don't have digital retailing didn't see as substantial growth as those that had it. When you look at this, obviously in the middle of these two is people who said it didn't change. This group had the most that really didn't a major impact,” Denogean said. “But what that means is that is a world where there was an opportunity to have positive growth, they weren't really seeing that at the same take rate, especially new-car front-end gross.
“But the other takeaway here is that (for) dealers with digital retailing, it's a bit polarizing. This is a 20% technology, 80% process situation, where it's really what you do with it. So, those that have implemented it and really taken it into their process, over 50% of dealers on the new-car front-end gross side said I'm seeing positive growth in my front-end gross profit.
“But on the flipside, we have 30-something percent say that they saw a negative impact. So, we didn't get a lot of qualitative on that, but I think really what we're seeing is how they are adopting it and the process that they're using,” she said
In used cars, among those with digital retail, about 40% saw a positive impact on front-end gross profits. Close to 60% saw a negative impact. For those without digital retail, under 40% saw positive and just over 20% saw a negative impact.
In total, 40% saw a positive impact and less than 40% saw a negative impact.
“On the used-car side, what we did hear a lot in some of the survey data and also when we're talking to some of our dealers is … used-car front-end gross profit is being impacted by the market, so many, many dealers that we've talked to, especially on the used side, have had to drastically lower their prices. And that of course affects their front-end gross,” Denogean said.
The back-end gross profits may actually be where there is greater potential. Which is somewhat ironic, given that this tends to be where digital retailing gets a lot of pushback, in terms of dealers’ questions whether consumers will buy service and protection plans online, Denogean said.
The reason may have to do there being greater opportunity for more efficient and effective education on F&I benefits.
The study examined the percent of dealers who had positive versus negative movement in back-end gross profits in April compared to pre-COVID-19 levels.
On the new-car side, in total, just under half had positive movement. Less than 20% were in the negative.
For those with digital retailing, close to 60% were in the positive. Just over 20% were in the negative. For those without digital retail, just over 30% were in the positive, and just under 30% were in the negative.
For used cars, in total, about 45% were in the positive. Just over 10% were in the negative. For those with digital retail, close to 60% saw growth in back-end used-car gross profits. About 15% were negative.
Among those without digital retail, about 35% were positive and 20% were at a negative.
“What I found most interesting is the growth both in new-car and used-car back-end gross when it relates to this digital retailing-enabled group,” Denogean said.
“Really, I believe that that has a lot to do with the fact that they're educating the customer upfront,” she said. “The customer is able to self-discover and educate themselves, first and foremost.
“And we know from that Cox Automotive study a while ago that awareness is the first thing that drives the likelihood to buy a lot of these service and protection plans. And then, because what we're really finding, especially right now, is that just because you have digital retailing does not mean you set and forget it.
“So, the sales process that these dealerships have taken on is that they actually walk the customer through, whether it's in a phone conversation or a Zoom call,” Denogean said. “They're walking them through the products, again, as they're having the conversations to finalize the deal” and that carries over into F&I
And consumers being ale to evaluate F&I plans on their own time, “is a really big driver in adoption,” she said.
People have more time to consider F&I product, when they’re not sitting in back of F&I office, and maybe they’re more willing to adopt those plans.
Anecdotally, Denogean said that given the current environment, there is a greater openness to service plans and warranties. That aligns with a desire for peace-of-mind in challenging times and avoiding complications when it comes to vehicles, she said.
“Even though we're not driving, there's a strong appreciation for our vehicle and a desire to protect it so that if I do need to go somewhere in an emergency or (another situation), that it works well,” she said. “And so, I think as people are buying cars, there's just kind of a conservative nature that's happening right now about protecting our life.
“If you're in the market to buy a car, I think you're just more open,” she said, based on what she's hearing from dealers.
Dealers have been forced to go with smaller teams, but now they're seeing more sales per person and having fewer expenses, Denogean said.
In the study’s slide deck, Roadster shared these points of employee productivity survey feedback:
In data attributed the Roadster/NADA study and the Dealership of Tomorrow Study from NADA and Mercer, the slide deck indicates the NADA Guide amount for units sold per salesperson per month is 13.
(That takes sales managers out of the equation; with sales managers, the NADA Average is nine).
For the surveyed dealers, the average units sold per month before COVID-19 was 13. In April, it was 18.
“So, overall, that’s five additional sales per salesperson that they were able to get out of being more productive with digital tools during this time period,” Denogean said.
Another data point in the presentation shows that leaner teams had higher cars sold per person, “which seems obvious if you really think about it,” based on supply/demand, she said.
Here’s how the data shakes out.
For dealerships with 75% or more of their staff working, cars sold per person was down by two units.
For dealerships with 50% to 75% of their staffs, the number was unchanged.
"Which I think makes a lot of sense, because if you look at where people are down from a sales perspective, they're typically down anywhere between 25-50%, depending on the market,” she said.
For dealers with 25-50% of their staff, sales per person was up six units; for dealers with 0-25% of their staff, sales per person was up 20+ units.
Denogean makes it very clear that Roadster is not advocating not bringing back salespeople and that the company is sensitive to such situations.
She said that while, “we're not trying to tell people not to bring back their employees, I think right now, from a business perspective, we have to think about what we need to survive and what's possible.
Denogean said that, “in a world, where we return to the great numbers that we had back in February, from a sales perspective, and even growing further — maybe SAAR gets to even higher numbers than they are right now — you can imagine keeping the team that you have and not needing to hire anybody else if you can actually have them be more productive.”
Of course, when the market opens back up further and consumers utilize in-person routes to car-buying route, are those same sales per person number sustainable? Denogean believes so, given two benefits that come from digital retailing technology.
"One is that they can, pretty much, what I like to say, put the customer to work — which is not how we think about it normally, right? We want to empower the customer. The customer can do what they want on their time,” Denogean said.
However, dealers are finding that instead of “immediately saying, ‘come in for the appointment’” to the customer, they are able to walk the customer through some of the car-buying steps digitally and allow them to do some of the process on their own.
“So, now what's happening is, if they can walk the customer through those steps and the customer did some on their own, they can work multiple deals at the same time,” she said. “So that's one aspect and I think that they'll carry a lot of that learning forward, which is, let's get the customer to do more, before they come in.”
The other aspect is that the technology allows the salesperson to take care of tasks like penciling, desking deals, etc. In other words, a lot of what they'd have to go to desk for, they can now do themselves.
"It's not to say that the sales manager isn't important. It just means that it's a different role for them,” Denogean said. “It's to coach and guide their team versus just sitting at the desk, potentially."
She later added: "Even when people are able to come back in, you're still going to have a situation where using the technology, whether it's in-store or while the customer's at home, the customer can drive. They can do a lot more of it with the salesperson. So, they don't have to leave the customer's side. The technology helps guide them. It just makes for a more efficient process.”
In its presentation, Roadster carved out its own sample set of users from the overall study.
Here’s how those dealers responded to various benefits of digital retailing during COVID-19:
Citing its Roadster Net Promoter Score Survey Data comparing April to February, the company found that the average time to purchase in February was 2.31 hours. In April, it was 1.71 hours.
In April, 33% of consumers completed the purchase in less than an hour, compared to just 9% who did so in February.
Denogean points out that in the current environment, “If I have to come into the dealership, I really don’t want to be standing there very long,” which has pushed consumers to do more online before arrival at the dealership.
Here’s how the numbers shook out:
February:
9% spent less than an hour at dealership
34% spent 1-2 hours
30% spent 2-3 hours
17% spent 3-4 hours
10% spent 4 or more hours
April:
33% spent less than an hour
35% spent 1-2 hours
15% spent 2-3 hours
7% spent 3-4 hours
10% spent 4 or more hours
This kind of efficiency is "putting a spotlight on why we feel so strongly that we'll carry this trend forward of more productivity per salesperson. Because when you can take less time, you can handle more customers."
