KAR Global’s sale of its U.S. ADESA auction business to Carvana is likely to close within a week, KAR leaders said in an earnings call Wednesday, and with that will be a paradigm shift for the wholesale car business.

The company, the longtime parent of the nation’s second-largest auction chain, will not have a physical auction presence, at least not in the United States (The ADESA Canada, ADESA UK and ADESA Europe businesses, along with KAR's affiliated inspections, transportation and other services brands like AFC, will remain part of KAR.).

Citing rumblings of some dealers looking at alternatives to physical auctions and talk of some OEM clients moving away from ADESA, an analyst asked management if KAR itself had seen any “backlash” from the sale announcement.

While acknowledging the deal's impact to the overall remarketing industry, KAR’s customers “understand the strategy,” said chief executive officer Peter Kelly, who spent time with clients post-announcement and got a sense of their temperature.   

Of course, there was some initial “confusion” about transaction specifics early on, as the industry needed “digest” what it all meant, Kelly said.

“I'd say uniformly pretty much our customers see a future where there are more digital transactions, not fewer, and understand the strategy and very interested to see what we can do for them and the solutions we can bring to them in that regard,” Kelly said. “But let me provide a little bit more context on that.

“For sure, the announcement of the transaction was a big event in our industry. It did take a little bit of time to digest,” he said “And there was some, I'd say, confusion in the very initial stages as to exactly what has been acquired or divested and all that sort of stuff.

“Given all of that, it was important for us, certainly in those early days and weeks of initial weeks post announcement, to spend a lot of time with our customers, which we did, and frankly, which I did personally,” Kelly said.

“And I guess I'd characterize the response as regards to Remainco as follows: Our customers understand the strategy. They understand the rationale. And I think they're enthusiastic about working with the new KAR.”

So, with the “new KAR,” will there be impacts to the some of the remaining segments of the business?

For example, AFC.

Kelly said he doesn’t envision much negative impact to the floor plan provider, given that it is an agnostic platform, both in terms of the channel type and marketplace through which the dealer is buying.

Independent dealers use AFC floor planning at ADESA auctions, but also at its competitors and through digital properties.

“So, when AFC establishes relationship with a dealer, it's very important that they support that dealer's vehicle purchasing irrespective of where the dealer acquires the inventory,” Kelly said. “That very much has always been part of their strategy. And as a result of that, only a relatively small percentage of AFC's total loans were purchased from KAR's marketplaces or from ADESA … I think AFC really has sort of a channel-agnostic point of view.

“As long as the dealer wants to buy a car, AFC will finance the vehicle. So, we don't see any risk. We haven't seen any risk show up in the numbers. We haven't seen any erosion of the customer base whatsoever in the past 60 days since announcing this transaction,” he said.

Later in the call, Kelly was asked how the sale of the ADESA brick-and-mortar assets in the U.S. might affect the competitive advantage of OPENLANE.

Kelly, who was a co-founder of OPENLANE before its eventual sale to KAR, said “close to zero percent” of the vehicles sold through the platform last year came from an ADESA physical property or another auction’s physical property.

While not providing an exact calculation, he estimates somewhere around 98% or 99% of vehicles sold via OPENLANE were on a dealership lot.

“So, I don't think the physical assets are a necessity there,” Kelly said. “And frankly, when we looked at cars that don't sell on OPENLANE, where do they go to, they get distributed to a wide range of options.

“We never had the ability to say, ‘Well, let's direct all those to ADESA auctions,’” he said. “The customer makes that choice, as they should.

“So, I don't think that the physical assets are a necessity or a moat on OPENLANE. I think the moat on OPENLANE is build great digital products that work for the seller and work for the dealer and provide a very effective digital marketplace that transacts a high percentage of their cars quickly and at low cost. And I think that's what OPENLANE has focused on for 20 years.”

Kelly went on to emphasize that the sale of the ADESA U.S. auctions allows KAR to double-down on its digital focus, and hopefully “bring whole lot more innovation to that channel than perhaps we have done in the past just by being more focused on it.”