KAR, Cox take different approaches to growth

Cox Automotive and KAR Auction Services Inc., owners of the two largest U.S. auction groups, each want to grow and diversify in the face of a rapidly evolving industry.

But their approaches are quite different.

Take Cox, which got into the automotive realm with its acquisition of Manheim in 1968. The privately held Atlanta company's automotive operations have exploded in size since 2010 thanks to major acquisitions, including the purchases of Kelley Blue Book, vAuto, Dealertrack and more.

Cox Automotive COO Mark O'Neil, former president of Dealertrack, said the company has one thing in mind when it decides whether to acquire a startup or another company: Does this give Cox something new to offer?

"Acquiring all these companies allows us to better execute our vision, and our vision is transforming the way the world buys, owns and sells cars. And to the extent that we have all the pieces of the puzzle to execute that transformation, it's much more likely that it's going to happen," O'Neil said.

KAR, the publicly traded parent of ADESA, the nation's No. 2 auction group, has a different approach to achieving a similar goal.

"We're not wed to our existing business model," KAR COO Don Gottwald said. "We're willing to partner. We don't feel like we need to own everything. Sometimes it makes sense to partner. Others it makes sense to acquire, to more broadly syndicate those abilities."

Case in point: KAR's partnership with TradeRev, a company that facilitates online dealer-to-dealer auctions. KAR, of Carmel, Ind., took a 50 percent stake in TradeRev in 2014 and in March extended up to $15 million in credit to the company as it looks to expand into new markets.

Gottwald said TradeRev provides an "interesting" example of how a partnership, rather than an outright acquisition, has worked for both parties.

"A lot of it has to do with what their needs are," Gottwald said. "TradeRev, when we came to know them, was a very early-stage organization. Partnering with us made a lot of sense for them as they expanded their business."

To be sure, KAR does not shy away from acquisitions in certain cases. In April, KAR said it would acquire data analytics company DRIVIN for $43 million in stock. DRIVIN uses pricing, registration, retail and economic data to match inventory with demand.

KAR's 2016 acquisitions included GRS Remarketing, of the U.K., and independent auctions in Michigan, California, Oregon and elsewhere.

O'Neil said Cox's days of "game-changing" acquisitions such as Dealertrack could be coming to an end, though.

The company's major acquisitions have put Cox in a place where it feels comfortable that it can meet its customers' needs.

"At this stage in the game, we think we have all the big pieces we need to really transform the industry. What I think is likely to happen as I look forward is that new pieces of technology will come up, new opportunities will come up that we didn't anticipate today that will suddenly become relevant," O'Neil said.

As Cox's buying spree winds down, O'Neil said much of the focus is now on integrating each of its brands' offerings into the larger company.

"One of the reasons we've been successful is that we do not hold the belief internally that we know all the answers and we know the best way to do it," he said. "I think that's very dangerous thinking in an organization, generally speaking, and it's certainly very dangerous when you're doing an acquisition. So we try to be open-minded and learn every time we do an acquisition."