When KAR Global spun off its Insurance Auto Auction business this year, that was about 35% to 40% of its total business.

“We’ve become a much smaller company,” said Jim Hallett, who is chairman and chief executive officer of KAR Global.

“We have to continue to look for ways to take costs out of this business and become more efficient in the way that we do business,” Hallett said.

Hallett made those comments during a phone interview with Auto Remarketing. The interview took place soon after KAR’s third-quarter 2019 earnings call on Nov. 6.

In a news release accompanying the earnings report, Hallett said the company experienced growth across its businesses in the third quarter, but he noted that volume and margin pressures “drove consolidated results lower than anticipated.”

During the earnings call, Hallett said the company is challenging all of its legacy operating processes, “especially in the ADESA physical auctions.”

The company sees its businesses transforming the physical auctions with the adoption of VirtuaLane, a live, in-lane auction technology that creates a virtual marketplace for customers at its physical auction locations.

Other transformation includes greater use of digital auction offerings and the need to reduce cycle times to meet commercial customers’ goals, Hallett said during the earnings call. The company must reduce its direct cost of delivering those services, he said.

Ancillary services an area of growth

The KAR earnings results showed some positive news, with KAR executive vice president and chief financial officer Eric Loughmiller reporting that its CarsOnTheWeb product is performing as expected. Hallett reported that the company’s AFC business performed in line with expectations.

Also during the earnings call, Hallett noted that most of the company’s growth came through its ancillary services. That could continue in the fourth quarter. Hallett said during the earnings call that the fourth quarter is always a strong one for his company in the area of ancillary services, which include areas such as reconditioning, condition reports, inspections, and transportation logistics.

“And this year should be no exception,” Hallett said.

Asked to expand on that during the phone interview with Auto Remarketing, Hallett noted that the fourth quarter of 2016 was strong in the area of leases. December 2016 showed the most lease originations in history, he said.

Many of those vehicles should arrive back in the wholesale market during the fourth quarter of this year, and those vehicles will use ancillary services the most, Hallett said.

“We have a very large share of commercial business,” Hallett said.

He continued, “We offer all the off-lease programs, the upstream programs. When those vehicles aren’t sold in an upstream format or online format, they then make their way to physical actions. As they make the way to physical action, that’s when we get a chance.”

Hallett often says that when a car does not sell upstream, there is a reason. Usually, that reason is price or condition, he said.

“And so, as they make the way to physical actions, that’s when we get to do the work,” he said.

In his November conversation with Auto Remarketing, Hallett said his company’s revenue per car sold at physical auction was in the area of $900 over the past month. He added that his company typically sees very high revenue per unit for ancillary services in the fourth quarter because historically that would be a lower-volume quarter.

But he said OEMs also do a lot of work on vehicles during that period in preparation for the season, which he said begins around the middle to end of January and runs through the spring.

VirtuaLane and efficiency

Hallett said 30 KAR auctions now have VirtuaLane capability and that the number would “keep marching” higher.

Loughmiller also participated in the phone call with Auto Remarketing and said commercial consignors have been very receptive to using VirtuaLane. Dealers, however, have not been as easy to convince, he said.

Hallett added that a virtual auction and not running cars across the block for safety reasons is a description of “kind of the auction of the future.”

He said safety is a core value for any company, adding that commercial sellers understand the need to create a safe environment for employees and customers.

“And so, they get it right away, and they want to be supportive,” Hallett said.

Asked to expand on areas in which the company is looking to improve efficiency at the physical auctions, Hallett answered, “The first one is VirtuaLane, not running these cars across the block.”

He expanded on that by noting that his company’s contract labor on sale day is about $35 million to $40 million annually. He provided a scenario in which the average sale brings in about 100 drivers per week.

“Well, if you multiply that by 75 auctions, that becomes a fairly significant number,” he said.

He provided another scenario in which an auction was able to eliminate one lane.

“In each auction, there’s a team, including an auctioneer and their ring men and administrative assistants, and … lane captains,” he said. Eliminating one lane at all 75 auctions would mean “a big number” in the area of savings, he said.

Loughmiller added, “We’re reimagining how we run these legacy physical actions and (asking) how do we become safer? And how do we become more efficient and do a better job for the customer than what we’ve been doing in the past?”

Cross-training the TradeRev and ADESA sales teams to provide one point of contact for dealers is another area of efficiency in which the company is focused.

Hallett explained that a KAR physical sales representative might visit a dealer on a Monday, a TradeRev representative might visit that same dealer rep the next day, and then another KAR representative might visit that same dealer to sell a different product on Wednesday.

“What would you say to that sales team?” Hallett said.

“You’d say, ‘Are you all with the same company?’” Hallett continued. “Why can't I just have one person come in here and be really efficient with my time and represent all of your products and all of your services, whether it be digital, or whether it be physical, whether it be transport, whether it be inspection, whether it be finance?” Hallett added, “I think that becomes the winning solution and the winning combination in the industry.”