Kelly, co-founder of Openlane, an Internet-based remarketing firm later bought by KAR, became CEO in March.
It's important to listen to customers who buy and sell vehicles at the company's auctions, Kelly said. While he said he is encouraged about customers embracing digital wholesaling — as most have — a small subset still prefer seeing vehicles physically running in-lane.
It's been a sticking point for some customers, representatives of some auction firms have said.
Regardless of how thorough condition reports have become across the industry, some buyers say vehicles, particularly those on the cheaper end of the spectrum, perhaps with salvage titles or serious wear and tear, are better seen in person.
Opponents of vehicles running in-lane have countered that such vehicles can still be previewed on the lot before a sale and need not physically run down the lane.
The main argument for not running vehicles down the lane? Safety. A handful of accidents in recent years, some fatal, have happened at auction sites. KAR Chairman Jim Hallett, who stepped down from the CEO post earlier this year, has been a vocal proponent of digital auctions for this reason.
But by not running vehicles down lanes, KAR has lost some customers to competitors, Kelly acknowledged.
"That's been evident in our numbers," he said. "We've known that for well over a year."
Still, KAR's pilot, which began last week, is seen as a small test by the company. It will run for 90 days and include 11 ADESA locations in the U.S., and the buyers and types of vehicles included will be limited to mostly older, higher-mileage cars and trucks.
The pilot will help executives determine whether there is space to run some vehicles through physical lanes within a broader digital marketplace model. KAR also will gather data on whether running cars physically through lanes truly improves outcome for customers, Kelly said.
"The data that we've had up to this point, where we're comparing our data with our competitors' data, doesn't reveal that," he said. "This will give us a true ADESA-only comparison of that data."
The pilot is happening as KAR's business continues to rebound. The company reported a 40 percent gain in revenue to $585.4 million in the second quarter, while it swung to net income of $11.5 million, a striking contrast to its loss of $32.3 million in the pandemic-marred second quarter of 2020.
But supply constraints continue in the wholesale market, especially from commercial sellers.
ADESA sold 711,000 vehicles in the quarter, of which 53 percent took place at off-site locations. KAR sold 119,000 vehicles on its TradeRev and BacklotCars mobile sales platforms during the period, representing a 65 percent rise year over year.
"I continue to be encouraged by our performance in this part of the business," Kelly said.