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KAR and ADESA See Sales Growth with Profit Decline in Changing Wholesale Space

For ADESA’s par­ent com­pa­ny KAR Auc­tion Ser­vices Inc., the first quar­ter of 2014 was very good for sales vol­ume, but prof­its saw a decline dur­ing that time. Some of that came through at the cor­po­rate lev­el with refi­nanc­ing of its cred­it agree­ment; but some of that seems to be tied into the tran­si­tions being expe­ri­enced over­all in the whole­sale used vehi­cle space.

Refi­nanc­ing the cred­it agree­ment decreased net income 29% to $20.7 mil­lion dur­ing that time. Rev­enue increased 5% to $583 mil­lion dur­ing the first quar­ter. The ADESA unit saw rev­enue increase 5% to $298.1 mil­lion dur­ing that time.

Rev­enue growth was dri­ven by a 7% increase in the num­ber of vehi­cles sold; but that was par­tial­ly off­set by a 2% decrease in rev­enue per vehi­cle sold. The decline in rev­enue per vehi­cle sold at ADESA had a lot to do with the sales growth in its online sales chan­nels – 37% of sales and up from 34% of those sales in Q1 2013.

Online sales have been gen­er­at­ing less rev­enue per vehi­cle sold than sales in the phys­i­cal auc­tion lanes, accord­ing to KAR Auc­tion CFO Eric Lough­miller. The decrease came from con­tin­ued suc­cess of KAR’s pri­vate label closed web­sites that are open to deal­ers oper­at­ing spe­cif­ic client fran­chis­es.

The mar­ket dynam­ics con­tin­ue to change for ADESA – and for Man­heim; phys­i­cal auc­tions are see­ing sol­id results, but the land­scape con­tin­ues to change with online auc­tions and upstream chan­nels; and the way remar­ket­ing ser­vices are being cus­tomized for clients. As an exam­ple, sales of deal­er-owned vehi­cles grew to 50% of the company’s busi­ness in the first quar­ter, said Jim Hal­lett, KAR’s CEO. That was up from 25% in 2009.

Clients such as deal­ers and OEMs are going through their own chal­lenges in remar­ket­ing; these trans­ac­tions can pro­duce less rev­enue and prof­it than what auc­tions had expe­ri­enced in the past. ADESA and Man­heim are adapt­ing to a fast-chang­ing whole­sale used vehi­cle mar­ket — the sales vol­ume is there but prof­its can become more thin.



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