CARY, N.C. -

Not to get too philosophical here, but as it turns out, necessity is indeed the mother of invention — and that includes the auto auction business.

What started off as a “tool of necessity” for KAR Global as it rebooted auction sales in early April has emerged as another digital auction sales alternative — and one the company can run remotely, using an automated auctioneer and all-digital interactions between buyers and sellers.

KAR chief executive officer Jim Hallett and chief financial officer Eric Loughmiller discussed this new platform called Simulcast+ and more with Auto Remarketing in a wide-ranging interview that touched on vehicle storage plans, thoughts on a potential Cash for Clunkers program and the possibility of re-opening physical auctions with no vehicles running through the lanes.

From necessity to an extra plus

On March 20, KAR announced a two-week stoppage of all ADESA physical sale operations (which included Simulcast) in response to the COVID-19 pandemic.

As it began to restart auction sales, “we had our first-ever fully digital auction that was operated remotely with an automated auctioneer and all buyers and sellers interacting through our Simulcast platform,” Hallett said during the company’s latest earnings call.

“Simulcast+ has allowed us to sell vehicles from locations that were shut down. KAR Global is the first mover in the use of this technology where there is an automated auctioneer and we’re very encouraged with the initial results,” he said.

Hallett’s a hockey guy, but perhaps the best way to think of the automated auctioneer is a basketball shot clock. But with a lot less time.

The “continuous clock” allows for 10 seconds between bids, counting down from 10 until a bid comes in. Then it restarts. There is also a block clerk who remotely manages the flow of bids.

Among the various features are a chat function allowing buyer and seller to connect and the ability to re-run vehicles that don’t sell.

Sellers also don’t have to wait until sale day, since they have the ability to run a sale any time it’s needed, without having to transport the vehicles to the auction. Simulcast+ also has the capability to be tailored to specific buyer groups, selling vehicles from multiple locations and target sales to a broader audience interested in a specific vehicle.

Perhaps most importantly, this approach has allowed KAR to still sell when state restrictions prevent in-person sales.

“Initially, we were using it in areas where we were not permitted to run a live auction with anybody on site,” Loughmiller said in the interview.  

The first use of Simulcast+ was in Des Moines, Iowa, followed by a marshalling yard in Dearborn, Mich. KAR has been running these sales for about six weeks, and as of the earnings call, KAR had run more than 20 auctions on Simulcast+.

“It became a tool of necessity that’s turned into something that is of interest to certain customers,” Loughmiller said.

Hallett added: “When state laws prevented us from being an essential service, which prevented the sale of cars, and prevented dealers from congregating or coming onto the property or being able to touch and see the cars, this was a great tool to get these cars up on Simulcast.

“We couldn’t bring an auctioneer in. We went with the automated auctioneer. and it serves us very well,” he said. “It demonstrated to us that over the sales we ran, there is little to no difference in terms of the proceeds. Sometimes, we might get a percent or two better with Simulcast+. Sometimes, we get a percent or two better with just straight up Simulcast.”

Preparation for storage challenge

On an industry level, when mass volumes of vehicles come back into the market — be it off-lease volumes, off-rental volume, etc. — that can create storage challenges, with or without a pandemic.

But when auction sales are slower, that can exacerbate the challenge in the industry.

Though executives have said the number of cars on KAR properties is increasing, the company was prepared. Hallett explained that during Great Recession, particularly amid the General Motors and Chrysler bankruptcies, KAR was concerned about having enough room to store vehicles.

So, the company took action.

“And we put a contingency plan in place in all of the markets we felt necessary where we could have an overflow or a capacity issue,” Hallett said.

The company has not had to utilize that real estate until this week (and only to a slight degree) since it has been able to keep sales running strong.

“The market actually has been very good. We shut down for two weeks. And then we re-opened our auctions after two weeks … this is now our sixth week in a row for being back up and running our auctions,” Hallett said. “And every week, we have sold more cars. And we’ve had a higher conversion rate. More cars consigned and a higher conversion rate. 

“And we’re getting back now to where we’re selling a little bit more than half of the normal inventory that we would typically sell … Last week, if we sold 40,000 cars, we created 40,000 new spaces for inbound cars,” he said. “And we’ve been rolling enough inventory, selling enough inventory, converting enough going out the door that we’ve got room to bring more cars in the door.”

Loughmiller said there are a “couple of locations” where KAR has had to do short-term leases for temporary shortage. But they’re “fairly small” and in larger cities that have had the biggest impact.

“It’s minimal to date. And we think that need might be greater as we get into the summer months when there’s lease returns, repos start picking up again. So, we’re prepared,” Loughmiller said. “But we haven’t had to do much yet.”

Re-opening traditional physical auction sales

Across the wholesale industry, some auctions have re-opened traditional, in-person sales. Some never stopped running them.

So, we posed this question to Hallett and Loughmiller: What would have to be the ideal scenario for ADESA to re-open a traditional, physical, in-person sale?

Hallett boiled it down to three key priorities, in order: First priority is employee safety above all else. Second is adhering to local and state laws, which vary wildly.

“We’re going to stay legal,” Hallett said. “We are not going to violate and we’re not going to try to look for a loophole to try and prove that we’re an essential business.”

Third, he said, “we’re going to listen to our customers. And we’re going to see what our customers want and how they want to be serviced.”

When the time comes for that to happen, “it remains our goal to have the safest environment in the industry, which means we would like to run fewer cars through the block,” Loughmiller said.

Hallett added: “Even before COVID (hit), I’m on the record from last year of saying that we’ve got to make this safer … we continue to push safety in the lanes. We don’t believe we should be running cars through the lane.

“And so, during this COVID period, there’s been no cars running through the lanes. And we’ve proven and demonstrated that we haven’t lost anything as a result of that. We may have gained things that we don’t know about,” Hallett said. “And our hope would be that we don’t run any cars through our lanes as we return to whatever form of auction we return to, whether it be simulcast, Simulcast+ or physical lanes, that we don’t run the car through the lane.”

Cash for Clunkers impact?

Echoing much of what the National Auto Auction Association has said, KAR executives don’t see a potential reboot of the Cash for Clunkers program as a plus for the auction industry.

“Cash for Clunkers might be good for the consumer. And it’s good for the manufacturers.  And it might be good for new-car franchises. But for the auction industry, it really isn’t a benefit. Because if you think about it, No. 1, we’re focused on selling used cars,” Hallett said. “So, if somebody’s buying a new car, that’s potentially taking them away from buying a used car. No. 2 is if there’s a trade-in in a Cash for Clunkers program that trade-in has to be crushed or dismantled and we don’t sell those cars. 

“So, we possibly lose a used-car sale and possibly lose a trade-in. So, for the whole car auction industry, it’s not a benefit.”

Loughmiller added: “I would argue that it’s a fairly minor negative, but it’s definitely not a positive.”