After an admittedly challenging 2019 for its TradeRev business unit, KAR Global outlined several adjustments to its approach for that digital dealer-to-dealer auction property in an earnings call last month.
Among those adjustments: changing the go-to-market strategy for TradeRev, blending the TradeRev and ADESA sales teams and trimming incentives.
And in a follow-up interview with Auto Remarketing, KAR leadership brought up an interesting point: Canada, where TradeRev was developed and initially launched, is a very different market for the digital dealer-to-dealer auction space than the U.S.
And the company has had to adjust for those differences.
“Our model that TradeRev started with has worked very well in Canada. The U.S. market is different,” KAR chief financial officer Eric Loughmiller said during the interview. “It’s not that it was a good idea that didn’t work. It worked in Canada and what we found (is that) it did not translate as well as into the U.S. marketplace.
“That’s the pivot ... the U.S. market proved to be very different in terms of dealer behavior and how they wanted to perform the transactions,” he said. “And we needed to become more responsive to that, rather than convince them that our model was what would work for them.”
TradeRev, “was built in Canada, it was built by a Canadian dealer and it was built for the Canadian market,” added KAR chief executive Jim Hallett.
“And we may have overestimated our ability to take that Canadian product and just flip it into the United States,” Hallett said.
In fact, the border between the nations is a “fine line” that separates two “very different” wholesale markets.
“Even though Canada doesn’t seem that far away, and you would think culturally we would be very similar, the fact is, we’re very different,” Hallett said. “And to Eric’s point ... Canada does not have all the tools and all the resources to price their cars and sell their cars that the U.S. has.”
Role of geography & population
Beyond market differences, there are also geographic and population center dynamics at play. There are fewer auctions in Canada, and they tend to spread out. While there are four ADESA locations in Ontario (where TradeRev began), the Western reaches of Canada includes just six ADESA auctions in the 1,400-plus miles between Richmond, British Columbia, and Winnipeg — and two of those are in Richmond.
There are 15 total ADESA locations in Canada, and its rival, Manheim, has six locations. The respective U.S. auction count for each company is substantially higher.
And while ADESA is in every major Canadian market, Hallett points out, there simply aren’t as many of those major metro centers as there are in the U.S.
“I think geography definitely plays a role. On the other side of that coin, Canada took the early lead in selling cars online, because of the geography and the geographic distance between auctions,” he said.
Loughmiller added: “They have fewer alternatives and there are far fewer dealers to convince that this is a good product. In the US, the market has a lot more dealers — a lot more independent dealers, a lot more dealers to train.”
Similar shift for EBlock
Another digital dealer-to-dealer auction that has its roots in Canada, EBlock, has also shifted its strategy a bit, as it formulates a plan for the American market.
The company has decided “to not compete” with physical auctions in the U.S. but rather to partner with them, says CEO Jason McClenahan.
EBlock launched a partnership and exclusive integration with remarketing technology provider Auction Edge in January — a collaboration designed to give independent auctions their own slice of the online dealer-to-dealer auction market.
The partnership between the two companies began in January with the McConkey Auction Group, which through the integration of the technologies now its own online dealer-to-dealer auction platform called MAG Now. It hosted the first MAG Now event on Jan. 28.
But the EBlock philosophy has always been one of blending brick-and-mortar with digitization, McClenahan said in an episode of the Auto Remarketing Podcast recorded at NADA Show 2020 last month. The company does not believe physical auctions are leaving any time soon.
“We’ve always been the ones (to say) that they need to evolve, leverage their logistics, their land to compete in the digital world,” he said. “And we’ve proven that concept with our holding compounds nationwide in Canada. We’ve never just been a straight-up digital auction. We’ve always had land complementing that.”
Not to mention the brick-and-mortar background of EBlock’s leadership, including McClenahan, who spent 17 years in that space.
“And we saw a gap in the marketplace where the independent auctions don’t have a means to compete with the other online disruptors,” McClenahan said. “We thought it was the best entry to the United States. And it gave the independent auctions the ability to not only survive but to thrive, in our opinion.”
He added: “We’ve kind of picked a strategy now to not compete in the US and be partners with the auctions. We’re going to be their technology provider.”
As of the interview at NADA Show, EBlock was still selling a small number of cars in the Northeastern U.S., which it planned to continue doing until it lined up auction partners there.
“We have a very aggressive roadmap to roll out at least 50 more auctions before the end of the year and be nationwide by Q4,” McClenahan said. “It’s gone incredibly well, but we purposely slowed down our rollout in the D2D space because we’ve been working with (Auction) Edge for nine months to put this deal together and really do all of our research and homework to make sure this was the right path for both our company and the physical independent auctions.
“So, we’re going to be fully scaled out here by the end of the year.”
The model in the U.S. will follow what EBlock has done with the McConkey group. And the U.S. concept will look different than what EBlock has done in Canada
Generally speaking, “We see a lot of flaws in the digital experience right now,” McClenahan said.
“And everything that we’ve built in Canada was always experience first; technology, people and experience. And you can’t deliver that experience in my opinion, without brick-and-mortar behind digital.
“KAR has TradeRev. Cox has Manheim Express. The independent auctions need something else. But the key is to leverage their physical footprint with the logistics, reconditioning, mechanical, transportation,” he said. “So, we feel that the independent auctions are in a very unique position with our competitive technology to go out and deliver a better online experience for the buyer and the seller — to clear vehicles off their lot quickly, efficiently and leverage their brick-and-mortar compounds.”