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.