A big focus for KAR Global, parent company of the ADESA auto auction chain, will continue to be providing ancillary services in the wholesale marketplace and driving additional revenues per unit.
“I think what you’ll see for us is growing dealer consignment, relatively flat commercial volumes, but increased revenue per transaction in the physical auction, because the Carvanas, the CarMax, they want retail-ready cars,” KAR chief financial officer Eric Loughmiller said in a phone interview shortly after KAR’s quarterly earnings call in August. “The wholesale prices are dropping; so, they want those cars; they’ll pay actually more if they’re ready to go on the front line and be sold over the next three days.
“So, it’ll become to us an RPU story,” Loughmiller said, referring to revenue per unit. “I see revenue growth for KAR coming because of that growth of RPU on the commercial (side) and growth in volume on dealer consignment.”
Added KAR chief executive officer Jim Hallett, who was on the same phone interview: “More of these cars will get to the physical auction, and when they get there, we’re going to do work on them because dealers want them retail-ready.”
In addition to the buying and selling of vehicles that happens at auto auctions, ancillary services are big focus areas for companies in the auction space, like KAR. They include everything from reconditioning and condition reports to inspections and transportation logistics.
These services give auctions the opportunity to provide additional services to their clients and potentially generate more revenue.
Based on his discussions, National Auto Auction Association CEO Frank Hackett has found that, “auctions are always looking for ways to expand their level of services.
“And I think that’s what makes the auctions unique, in that it’s not just selling a car in the auction lane or selling it upstream,” Hackett said in an August phone interview. “It’s that they really provide a level of service that really isn’t provided anywhere else, whether it’s marshaling cars or detailing or whatever it might be.
“I know auctions are always looking to expand,” he said. “They’d be foolish if they didn’t. It’s really a win-win for them.”
The investment in ancillary services at Manheim has been ongoing for some time, its president Grace Huang said in an August phone interview. The goal, she said, is to provide dealer and commercial clients a full set of end-to-end services.
“It’s part of a broader strategy for us to make sure that our clients get what they need, especially as the landscape changes. We’ve been investing in reconditioning … it’s always been a very important point, especially for commercial consignors. But as we begin to work with new types of dealer clients, as well as new types of fleet clients, we’ve been heavily investing in recon … as well as transitioning and transforming our physical footprint, especially on the reconditioning side as we enter a new space in mobility.
“We’ve also been really, really focused on making sure we continue to drive efficiency and convenience for our clients,” Huang said. “And when we think about end-to-end services, it’s about that.”
And sometimes those services may be provided to customers in the mobility space.
KAR announced in February 2018 that it had purchased STRATIM, a mobility and fleet management software company. It’s a move that gave KAR a strong foothold in the world of on-demand car- and ride-sharing services, urban commute providers and autonomous vehicles.
In June, Cox Automotive Mobility Group officially opened its Manheim Metro Atlanta Fleet Hub. Formerly an auto auction, the facility was converted into a mobility fleet servicing center that serves as the hub location for Pivet, which is the Cox Automotive Mobility Group’s brand that provides a network of end-to-end mobility fleet services.
During a tour of the hub in June, attendees (which included a group of reporters) made stops at three stations that illustrate the various services of the Manheim Metro Atlanta Fleet Hub:
— Imaging, advanced driver-assistance systems and telematics
— Mobile car care performed by RideKleen, a mobile car care company that Cox Automotive purchased in October
— A driver’s lounge for Lyft drivers
Alex Fraser, who is the general manager of AVP of Cox Automotive Mobility/Pivet.Automotive Mobility Group, said during that event at the hub that as the industry moves closer toward autonomous and electric vehicle usage, “we do have a core belief that more and more vehicles will be owned by fleets.”
That could include vehicles in fleets for subscription programs, autonomous driving, ride-hailing and beyond.
“We also know that about 60% of maintenance on personally owned vehicles goes undone,” said Fraser.
Not tending to maintenance needs might be acceptable (though not recommended) for individual owners, but fleet owners do not have that choice. They must performance maintenance.
“Because up time equals revenue, down time equals expense,” Fraser said. “And so, as we move towards (more of a) fleet ownership model, we have to service those fleets.”
Such services could include detailed cleaning, or services around ADAS and telematics.
It’s up for debate when some of this evolution, particularly around autonomy, is going to gain significant market share.
“All I know is we’re not going to be caught flat-footed,” Cox Automotive president Sandy Schwartz told a group of reporters after the June event at the mobility hub, calling the facility a “demonstration center.”
“The purpose of this (hub) is to A) hone our skills and to B) start understanding a lot of the things that, quite frankly, nobody understands … this is going to get us off the ground, and it’s also pushing us to invest money and to figure out the future,” Schwartz said.
The initial hub location made sense, given its proximity to Hartsfield-Jackson Airport, downtown Atlanta and in an area of town where greater access to vehicles is needed, Schwartz said.
As far as future locations go, Cox Automotive isn’t pigeon-holing itself into establishing all of its mobility fleet servicing centers at Manheim locations, though using the auctions is an option.
“I think some might be attached to auctions, but we’re not saying it’s got to be in the auction,” Schwartz said.
Still, Manheim’s legacy within Cox Automotive certainly provides a template on ancillary services like reconditioning as well as maintenance/repair that have to happen with mobility fleets.
“There’s one thing I would just tell you about Manheim — and look I love all my children equally at Cox Automotive — but, you know, we love the dirty work. We love getting our hands on cars. We love cleaning cars … and not a lot of people like doing that,” Schwartz said. “And so, one of the things I know is that we can be part of this future, because these cars are going to have to get worked on.
“I keep thinking about my grandchildren, and maybe my great-grandchildren someday,” he said. “I have no problem putting them in an autonomous vehicle if it’s safe, but I’m not going to put them in a car that’s dirty or a car that hasn’t been vetted or a car where the LIDAR hasn’t been adjusted.
“I think that there’s a whole new world that we really haven’t conquered yet that’s going to have to happen before we get to that next level,” Schwartz said. “We want to be part of it.”
And it’s not just the corporately owned auction chains or their parent companies who are part of it, either.
Lynn Weaver, executive director of the Independent Auction Group, said independents are getting in on the action, as well, and starting to provide such services to companies in the alternative-ownership space.
“I think the big change in the auction business is not the basic services that we provide — selling the cars and all that — but this whole list of a la carte services that are happening and changing every day,” Weaver said in a June phone interview.
“What do these new customers need? One thing auctions have and always have had is facilities, property, black top, marshaling capabilities,” Weaver said. “And that’s going to continue and probably get more and more important as time goes on, because these new businesses don’t have that.
“The cars are always moving and when they need to be refurbished, when they need to be sold or reconditioned, they have to have a place to send those cars to do that,” Weaver said.
For example, at America’s Auto Auction Harrisburg — formerly Harrisburg Auto Auction and owned by Weaver before he sold it to America’s in in December 2014 and then remained general manager until he retired from daily operations in 2018 — a client had previously been working with Uber, he said.
Services to mobility or alternative ownership clients could become more common.
“It’s going to be kind of another one of the a la carte services that independent auctions are able to provide for any kind of customer,” Weaver said.
And it could very well depend on the individual auction itself. Providing such services to mobility could “vary from location to location,” says Pierre Pons, who is president of the TPC Management Co. firm that provides consulting to auto auctions. (Pons is also the chief executive of the ServNet Auction Group, and will wrap up his 12 years as CEO there at the end of the year, while maintaining his leadership role with TPC.)
“I’ve got some of our clients that are, for example, providing services to Fair.com. And it’s just that. If they get 100 vehicles in, they may only run 10 through the block. The others they’re reconditioning, and they’re doing different things to, and then they’re making them available to go back out into service,” Pons said.
“But that’s really going to be dependent on the bandwidth of that auction. Our primary job in the auto-auction business is to sell vehicles, to liquidate assets for dealers and for our commercial accounts and for banks and leasing companies and rent-a-car companies,” he said. “And in some locations, auctions are pretty full doing that.
“Now if they can provide services economically to the mobility side of the business and they have the bandwidth and capacity and land and excess capacity in their reconditioning shops to do that, I think a lot of auctions will look to do that,” Pons said. “But not at the expense of selling vehicles for our customers, be they dealers or commercial accounts, that look to us as a liquidation method to sell their vehicles.”