CARMEL, Ind. — KAR Auction Services chief executive officer Jim Hallett spent nearly as much time discussing ramped up efforts for greater dealer consignment of vehicles at ADESA as he did reviewing the entire company's financial performance during a conference call Friday.

Hallett recapped his view about the current status of the wholesale vehicle market and what KAR is doing through ADESA to enhance the situation for dealers.

"We've seen 2010 begin with increased retail used-car demand and improving used-car prices. However, our industry continues to see tightness in the supply of vehicles at auction," Hallett explained.

"We see the opportunities for increases in the number of dealer consignment vehicles over the next few years. Dealer consignment will be a major focus of ADESA in 2010," he continued.

In order to have it be a focus at ADESA, Hallett shared how the company plans to orchestrate such an undertaking.

"We have reorganized our effort for dealer consignment business at all of our auctions. We've established a new management team to coordinate our efforts throughout North America and put in place dealer consignment managers at each of our 62 whole-car locations," Hallett noted.

"By the end of the first quarter of 2010, we will have almost 150 dedicated personnel focused entirely on dealer consignment," he went on to say.

"The auction industry has experienced reductions in the number dealer consigned vehicles over the last 18 months. However, our outlook for this segment of the market is positive, and we would feel that dealer consignment of our market share would improve in 2010 and going forward."

Hallett then articulated the makeup of that group of 150 auction professionals who now have a rededicated focus on dealer consigned vehicles.

"We've created an entirely new management team that reports directly to our president and CEO of ADESA. This management team primarily was recruited from the outside, people who were very familiar with dealer organizations and large dealer groups, the retail side of the business," Hallett emphasized.

"What we also did is we went to all 62 of our individual whole-car locations and we hired a dealer consignment manager. Many of these people came from the retail used-car business. They're very familiar with the retail used-car business in their local markets. I do tend to believe that the business is very much focused on the local market," he continued.

Hallett mentioned that this group gathered at the company's corporate headquarters for two weeks of training, in addition to discussions about best practices and how to implement strategies that help dealers most in each specified market.

The company is attempting to reach each used-vehicle dealer in the United States and Canada with the offer to help solidify inventory and improve sales performances.

"We're helping them to understand the benefits of the auction and what they can realize from that," Hallett said.

Company Financial Update

For the fourth quarter of 2009, KAR reported revenue of $417.9 million, which marked a 5-percent increase from the year-ago figure of $396.2 million. Meanwhile executives noted that adjusted EBITDA for the closing quarter of 2009 was $99.7 million. The figure calculated into a sharp 73-percent spike from the total in the fourth quarter of 2008, which was $57.5 million.

In other data stemming from the fourth quarter, KAR revealed that net income came in at $5.3 million. Executives pointed out a significant reversal from the closing quarter of 2008. At that juncture, the company had a net loss of $49.3 million

Moving onto a discussion about full-year figures, KAR executives determined total revenue was $1.729 billion. The figure was a 2-percent drop from their 2008 revenue figure of $1.771 billion.

However, KAR found that adjusted EBITDA for 2009 rose to $425.9 million compared with the 2008 total of $393.5 million. It meant an 8-percent rise.

Similar to how the fourth quarter ended, KAR's full-year net income reversed significantly. Officials said the 2009 figure was $23.2 million. They added that in 2008 the company sustained a net loss of $216.2 million.

"KAR's financial performance in 2009 is a reflection of our ability to continuously improve operations while simultaneously providing outstanding value to our customers," Hallett stressed.

"In addition to our solid operating results during 2009, we completed KAR's initial public offering, paid down $250 million of term loan debt, added two new facilities at Insurance Auto Auctions, kicked off our new dealer consignment initiative and significantly strengthened AFC's operations." Hallett added,

"These actions, in tandem with our solid business model, position us well for continuing to grow our earnings and cash flow," he went on to say.

In regards to the IPO that wrapped up in December, KAR highlighted that it generated $310 million in net proceeds.

"I believe the successful completion of the IPO in December not only permitted us to pay a significant amount of our outstanding debt, but I also felt it was an energizing event for our employees as well as for many of our customers," Hallett contended.

"As we go forward, I look forward to an ongoing dialogue with our investors now that we are a publicly traded company," he added.

Comments on Toyota Recalls

Before taking questions during the conference call, Hallett used the opportunity to share his thoughts about the ongoing recalls of certain Toyota vehicles.

"As Toyota dealt with the recall of its vehicles, we have taken a couple of actions. We temporarily suspended the sale of the affected Toyota vehicles at auction during the month of February while Toyota put in place the programs to repair the affected vehicles," Hallett noted.

"The period of time Toyota vehicles were not sold at auction was very short in duration and we are now selling Toyota vehicles throughout all of our auctions in North America," he continued.

Later in the call, Hallett was asked again to comment about Toyota units, but the subject was not one he felt entirely comfortable discussing.

"I don't think we're in any position to comment about the residual values of Toyota," Hallett told the questioner.

"All I can tell you is these cars are being repaired and they're reselling at all of our auctions," he went on to state. "We're not so much focused on the residual prices as we are just on transactions. I can tell you as recently as (Thursday) I spoke with Toyota and they've informed me that 90 percent of the grounded stock at auctions has been repaired and is in the sale process."

Rental Company Pull-Back?

Another line of questioning to Hallett stemmed from a discussion on a recent rental company conference call about that organization backing away from using auctions to remarket vehicles. The rental company was choosing to work more directly with dealers or other remarketing channels.

While not saying the company's name, Hallett elected to deflect the notion that rental companies are going to decrease their transactions with auction companies by very much.

"This has been something that has been going on for the last two or three years," Hallett indicated. "Rental companies are taking more and more risk vehicles. As they take more risk vehicles, they have to find ways to remarket the vehicles.

"In the past, quite frankly, the rental companies have never had a defined strategy on how to remarket vehicles," he interjected. "Right now, I think they're exploring all channels. They still continue to sell at physical auction but there's no question that they're experimenting with the online and virtual channels as well.

"We feel like the rental car companies are trying to determine what their best strategy is," Hallett went on to say. "We continue to see them take advantage of all channels. But overall we think our opportunities to sell rental cars will increase."