There is a dealer group that acquires inventory through KAR Auction Services, and there is not a manager nodding to a ringman in the lanes or hitting the buy button on a mobile device. No, there’s not a ghost or a hologram getting sedans, utilities and trucks for this dealer body. KAR executive vice president and chief financial officer Eric Loughmiller explained what’s happening as the wholesale market continues to evolve far away from the times when the only path dealers could take to secure inventory took spending multiple days away from their showrooms, walking lots, kicking tires and consuming vast amounts of caffeine and salted meat.

“A dealer group, they give us parameters and algorithms. They don’t have people doing it,” Loughmiller told Auto Remarketing during a recent phone conversation. “We purchase cars at their direction without them being on site at the auction. Using data and analytics combined with the artificial intelligence, they can bid without having a person in the lane.

“All of this is put together through the digital footprint that we’ve created,” Loughmiller continued.

Having a digital footprint larger than a lot that can contain more than 10,000 vehicles is center in the technological crosshairs of KAR chairman and chief executive officer Jim Hallett, who also shared his perspectives during the conversation with Auto Remarketing. Hallett and Loughmiller were fresh off KAR’s quarterly conference call with the investment community when the top company leaders discussed their financial statement along with the challenges it’s enduring to get TradeRev a greater toehold in the digital wholesale space.

“The biggest thing is we’re definitely an industry that’s going through a digital transformation, and we are very much positioning KAR to stay ahead of that curve by making sure we have the right assets that can manage the business and make sure we can do business the way our customers want to do business,” Hallett said.

“We don’t want to be a follower, and we will absolutely lead this change,” he continued.

In light of all of this change involving things such as algorithms, Loughmiller responded when asked what if an array of employees — from field representatives to lot attendants — were questioned about the current state of KAR.

“They probably have a little anxiety around what’s happening in this Internet world,” Loughmiller said.

“We all hoped it wouldn’t work, but it has managed to work somehow,” he continued, tongue-in-cheek. “It’s creating a new economy where people are asking, ‘How does that affect me?’ I think we have some uncertainty, but we see a lot of positives in the field.”

The financial report KAR shared articulated many of those positives, especially in the online world.

At ADESA, the division sold 3,472,000 units in 2018, representing a 9-percent lift year-over-year. Of that figure, the company said 1,304,000 units were online-only transactions, signaling a 39-percent spike year-over-year. The movement shifted ADESA’s total online volume from 46 percent of total in 2017 to 54 percent in 2018.

Back in 2014, the company sold 495,000 units online, representing 38 percent of its total volume.

KAR did point out that online revenue per unit at ADESA is a fraction of what it is when the vehicle goes through the physical sale — $121 versus $844 — respectively. Hallett acknowledged that he’s often questioned about why he’s so enthusiastic for cars selling on the online platform, even though the revenue currently is much smaller.

“The answer is simple: We don’t care where the car sells. We just want the car, and we want to sell the car. The economics and the margins will take care of themselves,” Hallett said.

And with KAR handling more sheer volume, the company is also seeing growth in other aspects of its business such as vehicle reconditioning as well as the funding resources available through Automotive Finance Corp.

“They’re using our services more than they have probably in the last 10 years,” Loughmiller said.

Leadership changes

In company news separately announced from its quarterly financial report, KAR revealed a six managerial adjustments.

ADESA announced Lawrence Cubitt has been named regional vice president of the ADESA West region. KAR highlighted that Cubitt brings decades of auction leadership and deep customer relationship experience to the role.

“Lawrence is a proven leader who is well-respected by employees, customers and colleagues,”, ADESA chief operating officer Srisu Subrahmanyam said in a news release.

“As general manager of ADESA Flint, he had a strong focus on talent development and continues to have a profound passion for the auto remarketing industry,” Subrahmanyam continued. “His success in auction operations and thorough understanding of customer needs make him an ideal leader to continue to grow our client relationships.”

Cubitt began his remarketing career more than 20 years ago as remarketing manager for a rental car company in Detroit. For the past 14 years, Cubitt has served as general manager at ADESA Flint, where he has grown the customer base. During his tenure, he has integrated services, technology and innovation that have streamlined the auction process and enhanced the customer experience.

 The search for a new ADESA Flint general manager is on-going, according to the company.

Additional auction leadership changes include:

• Jay Hinchman has been named general manager of ADESA Las Vegas. Hinchman has stepped down from his role as regional vice president of the ADESA West region to spend more time with his family and continue his 11-year career at ADESA. He joined ADESA in 2008 and served as general manager at ADESA New Jersey before assuming the general manager role at ADESA Las Vegas in 2014.

• Ed Burton has been named general manager of ADESA Birmingham. Burton joined ADESA in 2013 as general sales manager at ADESA Washington D.C. and has been influential in integrating TradeRev as the digital auction leader in the market. He brings 25 years of automotive industry experience to his new role. 

• Chris Beyer has been named general manager of ADESA Little Rock. Beyer began his career at ADESA in January of last year as assistant general manager of ADESA Little Rock. With 18 years of automotive industry experience, Beyer replaces Angela Sims, who retired at the end of last year.

• Todd Hoagey has been named general manager of ADESA Orlando. Hoagey brings 23 years of remarketing experience to his new role. He most recently served as chief executive officer of Auction Direct USA Used Vehicle Superstore, a company Hoagey co-founded in 2005.

• Mike DeForest has been named general manager of ADESA Tulsa. DeForest was previously general manager of ADESA Mercer. He brings 20 years of management experience to the role. Chris Angelicchio, general manager of ADESA Pittsburgh, has also assumed the responsibility for ADESA Mercer and is now the general manager for ADESA Pittsburgh/Mercer markets.

Finding shop technicians

Like initiatives put in motion by the National Automobile Dealers Association and Asbury Automotive Group, KAR is also looking to keep its locations stocked with a quality workforce capability of smoothing out dents and dings or installing brakes and tires.

“I like to say that the mechanics and the body shop technicians went away with the horse and buggy. They're a dying breed like the shoemaker and the tailor,” Hallett said during the conversation with Auto Remarketing.

To turn that tide, Hallett mentioned KAR is working with technical colleges in Indianapolis in to provide internships “for young people wanting to get into the mechanical trades, helping to train them and introduce them to our industry.”

Hallett added another point that might be quite enticing.

“The other thing is these are good paying jobs,” he said. “We’ve got to get out to kids that a four-year degree isn't for everyone. Sometimes a two-year associate degree in the specialty trades is going to provide you with a better opportunity and future and a good paying job.

“I think demand will continue to rise as we see more and more mobility fleets come in. I think people are going to see the opportunity, and it’s up to us to broadcast that through our dealer partners and our OEM partners and bring it to our auctions,” Hallett went on to say.

KAR’s current financial resources

Loughmiller emphasized that KAR is “well positioned from a capital structure perspective.” The company reported that it closed 2018 with $337 million in cash and cash equivalents as its total assets surpassed $7.2 billion.

Loughmiller explained the beneficial moves the company made before the Federal Reserve adjusted interest rates multiple times last year.

“In 2017, we were successful in refinancing our term Loan B as well as issuing $950 million in fixed rate bonds at 5 1/8 percent interest with an 8-year term. What that did is it protected us against some of what is happening now, so a substantial amount of our debt is fixed rate,” Loughmiller said.

“The remaining portion of our debt, which is about $1.5 billion in round numbers, while it’s floating rate debt, we’ve got $1.2 billion in interest rate caps, which by the way have been in the money since the middle of 2018, so we were able to fix interest rates, a portion through March and a portion through August. We’re very well positioned to ride through some of the uncertainty around interest rates right now,” he continued.

“Long term, we’ve been in successful in finding ways to protect ourselves against increasing interest rates. It might come with a little more cost later this year than it did a couple of years ago, but we’re comfortable that we’ll have no issues,” Loughmiller went on to say.

“And relative to liquidity, we have access to capital and we have adequate capital between the cash we generate and the revolver we have in our structure,” he added. “We’re prepared for whatever turbulent times we might run into.”