ADESA has acquired a 50 percent stake in a software company that has created a system to help franchise dealers buy and sell vehicles among themselves, ADESA’s parent company said Wednesday.
The acquisition news follows KAR Auction Services Inc.’s report of a 52 percent surge in second-quarter net on an 8 percent rise in revenues.
KAR says ADESA is now a partner in Nth Gen Software Inc., of Toronto. The company is the creator of the TradeRev online vehicle remarketing system. The deal also includes a joint marketing agreement to help TradeRev expand its reach in dealer-to-dealer sales in Canada, where it now operates, and to enter the United States.
The purchase price was approximately $30 million in cash, ADESA’s parent company said.
KAR CEO Jim Hallett said TradeRev will give franchise dealers “instant liquidity on their wholesale units” and allow ADESA to enter a new business segment for it.
‘Unique business model’
“We thought it was a unique business model and saw it was focused on what I would call an adjustable market that we currently didn’t feel we were getting a slice of,” Hallett said during KAR Auction’s quarterly earnings conference call Wednesday. “It really focuses on franchise dealers and their being able to get instant bids on their vehicles and instant liquidly on their wholesale units.”
Also during the call, Hallett said vehicle volume sold at ADESA’s physical auctions edged up 1 percent in the quarter while “a large number of” off-lease vehicles were sold on its private label sites that are open only to franchise dealers representing specific automotive brands.
Hallett said the volume of off-lease vehicles sold online in sales open to specific franchised dealers will grow so much over roughly the next two years that those dealers will be unable to absorb all of the volume.
Physical vs. online
He had thought that the overflow of off-lease vehicles from those closed auctions would show up in public auctions in the second quarter, but that didn’t happen.
Sales at physical auctions are important to ADESA because revenue per vehicle sold at those events is much higher than revenue per vehicle for online sales.
For example, in the second quarter, revenue per vehicle sold in ADESA’s physical auctions rose 4 percent to $680. In the same quarter, its online-only auction revenue per vehicle dropped 16 percent to $99.
The number of vehicles coming off lease will be 500,000 units greater in 2015 than in 2014, and will increase by another 700,000 units in 2016, Hallett predicts.
“So with the volume of cars coming to the market it will be difficult for the franchise dealer to absorb all this volume, but I’m out of predicting when that is going to happen,” Hallett added.
KAR reported that its second-quarter net income rose 52 percent to $50.8 million, as revenues rose 8 percent to $585.6 million.
Revenue for KAR’s ADESA unit grew 6 percent to $301.8 million in the quarter. The revenue growth was primarily the result of a 6 percent increase in the number of vehicles sold and an increase in ancillary and other services, the company said. But it was trimmed by currency losses of $3.9 million, mainly due to fluctuations in the value of the Canadian dollar.