ADESA Inc., the nation's second largest auto-auction company, this year will focus on building online auctions that are open to all dealers, its parent company's top executive said.
Jim Hallet, CEO of KAR Auction Services Inc., said KAR's ADESA unit operates about 90 percent of the industry's private-label online auctions, ones that are open only to franchise dealers representing specific makes.
But he noted that those online-only auctions' business model limits the number of dealers that can participate and that many participants' dealerships are located outside of the 500-mile radius where it makes sense to buy and ship vehicles.
He said operating more auctions that are open to all dealers will increase ADESA's online buyer base and its revenue per vehicle sold.
"If you're talking about a closed private-label program, you're talking about a buyer base of roughly 2,000 to 3,000 dealers," Hallett told analysts during the company's quarterly conference call on Wednesday.
"When you go to open online [auctions], not only do you increase the economics, you dramatically increase your buyer base. You pick up 17,000 or 18,000 franchise dealers. As well, you pick up approximately 37,000 independent dealers."
Hallett said, "We're going to continue to support every channel that we can to possibly sell a car."
ADESA's average revenue per vehicle sold in its online-only auctions was $118 in 2013, down from $126 in 2012. At its physical auctions, the average revenue per vehicle in 2013 was $651, up from $644 in 2012.
Hallett said ADESA sold 410,000 vehicles in its online-only sales last year, up from 310,000 in 2012. The mix was heavily weighted toward private-label sales, he added.
Parent revenue up, profits down
For the year that ended Dec. 31, ADESA reported an operating profit of $148.5 million, up 33 percent, on revenue of $1.12 billion, up 6 percent.
The revenue increase was primarily attributed to a 9 percent increase in the number of vehicles sold and partially offset by a 3 percent decrease in revenue per vehicle sold -- online and in physical auction lanes combined -- to about $545.
For the year, KAR said revenue rose 11 percent to almost $2.17 billion. Net income fell 26 percent to $67.7 million. The drop in net income came as the company's costs and taxes rose faster than revenue.
KAR also owns Insurance Auto Auctions Inc., a salvage auto-auction company, and Automotive Finance Corp., a floorplan finance provider to independent used-car dealers.