#137 - The Age of Change with Peter Kelly

Hello and welcome to this episode of the Independent Dealer Podcast. This week we have a truly special guest. Again, I think that Luke may have bribed someone or extorted to get Peter Kelly here, even though he's very generous with his time. His NIADA session will be airing on the 6th. He is the president of Car Global. Peter, introduce yourself.

Thank you, Jeff. Peter Kelly, president of Car Global. Delighted to be here today and thanks for the invitation. All it took was an invitation, but more than happy to be here to have the opportunity to talk to a broad audience of independent dealers. You know, you might know us better from our brands, Adesa, AFC, TradeRev, Autonique and others. Collectively, Car Global is the parent company and very excited to be here and looking forward to this conversation.

Just a quick wrap up. This is what we did this week. It's all about flexibility. It's all about doing our core business and it's about the digital transition. So take notes, listen what Peter has to say because this is truly the way to the future.

You are listening to the Independent Dealer.

Podcast with hosts Luke Godwin and Jeff Watson. Thank you so much for tuning in. Let's do this. Tell us, what do you see as the biggest kind of lessons we've learned or surprises that are coming out of all of this for the dealer community?

Yeah, well, great, great question. And I think probably true that for most of us, you know, had you asked any of us on the 1st of January, what sort of year would we have? Nobody would have guessed the year that we've had. So it's just been remarkable, probably maybe the most unusual year any of us have experienced in business. With the advent of, you know, coronavirus specifically. I think there was a period there we thought, you know, what's happening? Is the whole world like coming to an end. Do we even have a business? Will people even ever leave their house again? And then we had this huge rebound and really strong automotive market through the summer where a lot of consumer demand and maybe not enough supply and prices going up. I think what we're settling into now is maybe a little bit of a new normal, I would say. I don't think we're out of the woods yet by any stretch, but I think we've got to sort of our handle around, but what sort of environment we're in. And I think we've got some economic challenges still ahead as a country. You know, we got high unemployment. We've got to find our way out of that, get back to full employment. That's probably going to take a Bit of time. So, you know, what would I say are key lessons? You know, I think we got to stay flexible. You know, we started this year with a certain plan and a certain roadmap, and we were doing well in January and February. And by the middle of March, we had to change the whole thing because the situation changed. And I know that wasn't just us, that was probably just about every business out there, including most independent car dealers as well. So we all had to sort of be flexible, react quickly. And I think in a time like that, you've got to really drill into, okay, focus in on your core. What really matters in business, what do I need to do to keep the lights on, to keep serving my customers? And maybe some of the stuff a little bit to the edge maybe is a little less important in a time of crisis. And that's certainly what we did try to focus on. Well, if we have to do social distancing and we can't have auctions open, well, how can we enable our dealers to be successful? And can we get them in through our online tools? And we really put a strong focus on digital, and that proved very successful. And frankly, we've seen tremendous adoption by dealers of digital tools. And I think, you know, we've all kind of learned maybe new ways of doing business. You know, we learned new ways of doing business. And I personally don't think it's ever going to go back all the way to where it was. I think we've. There's been a big change, and some of that change is going to stick right now. Some of it may revert a little bit, but a lot of this stuff we've learned how to, you know, even at our company, our employees been working from home, right? And a lot of them want to continue to work from home. And I guess finally, you know, communication is really important. You know, communication. And I'm talking about here, about the organizations we run. You know, when there's a time of uncertainty, your employees are scared. They don't know what's around the corner. You know, you got to be open and candid with them. You can't, you know, you gotta be. You gotta deal with the facts. But I do think it's important if people know what the facts are, maybe they're a little less scared, you know, So I think communication was really important with us both with our employees and with our customers.

I agree, Peter. Communication, the biggest thing we can do in our organization is communicate properly to our staff. It keeps them from being on edge. And also, if we can communicate properly with them, then we can communicate properly with our customers and we are good to go then. So with all this has happened during this time, what industry changes do you see moving forward and what is the new normal look like to you?

Yeah, you know, I think, and you know, I speak to this in my presentation at niad in a couple of weeks, I'll be speaking to this. But I think, you know, first of all, one new normal for me is it really brings home what we're all about, why we're in business. And I think at the end of the day, we're in business to give consumers safe and reliable transportation. And I think we've all had this greatly increased focus on our personal safety, you know, and where are we safe? I think consumers have realized, hey, I feel safe in my home and I feel safe in my car. Right. And that safety in your car, I think, is really good for our business, for niada, for independent dealers, for all of us, right? We need to get from A to B. And we don't quite feel as safe on the bus or the train or the plane or the Uber, but we do feel safe in our car. So I think one new normal is private vehicle ownership. I always felt that was strong. I always felt that was going to continue to drive our business. But I think that's gotten a boost through this process. And the second one I'd say is I think, pick your industry. Pick any industry you want. Covid has accelerated a digital transition that was already happening in that industry. And I think that's true in our industry, whether you're on the retail side of the business or whether on the wholesale side of the business, consumers and dealers were getting more comfortable buying online, selling online. And that's been true for many years. But then we went through a situation from March to the present where that got accelerated further. And I've heard people say that when you look at various industries, they've kind of achieved three years of digital transformation in three months. March, April, May. And I think that's true in our business. And I don't think it's ever going to go back again, like I said, to exactly the way it was. It may go back a bit, we may find a new balance, but I think digital is going to be a bigger part of the future than ever it was in the past.

I think that leads us right into that next question there, Jeff.

Well, that's what's so funny is like if you think about it pre this, we were all kind of dabbling right I feel like everyone maybe had a, you know, a trade rev, an acv, a backlot, occasional simulcast, open lane, all the. All the little avenues that we were kind of dipping our fingers in here and there. We felt comfortable maybe buying the super low mileage under factory warranty, green light all the way through type car. And now we're learning to gain more trust. The auctions are providing more credibility through CR reports and transparency that way. And mean it, really. And the same thing applies for dealers, right? I mean, you look at us and we're talking about digital retailing. Now, if I want to push that on my consumer and I want to say, hey, consumer, I want you to be able to buy a car 100% online and trust me and my reputation and I'll just deliver the car to you. Right? Right. I don't need expensive frontage. I don't need, you know, this. And the same thing applies to you in the wholesale market. Right? I mean, you guys are probably looking at like, wait a minute, we don't need acres and acres of land in these hub locations. I can. I'm just gonna wholesale right off every dealer's backlot inventory, you know, or it decentralizes all this stuff and technology and those types of things. Right. I mean, it's really the physical auction and driving cars through a lane with a whole bunch of people smashing into each other. Like, that's. I don't know. Is that coming back ever?

Is that gone, Peter?

Well, I'm sorry, Luke.

I said, is the physical auction gone or are we ever going to come back?

Well, you know, I think I'd say two things. One is, I personally think physical locations will be a very important part of the industry's future. Obviously, they've been a very important part of the industry's past. I think they'll remain very relevant in the future. We still sell, you know, tens of thousands of vehicles each week from physical locations, and they offer really, really valuable services to our sellers and buy. But I do think increasingly the transactions will take place on digital platforms. If you think of the transactional experience, I think that's going to be heavily digital in the future. You mentioned some of the brands and you mentioned simulcast and those types of platforms. And I think all those platforms are learning. How do we do excellent condition reports? How do we create a good, seamless customer experience for the seller and the buyer? How do we give our customers confidence that they know what they're getting, and if there's an issue, we take care of it and all that kind of Stuff. So those are really the critical, the critical factors right now. Some of those vehicles, as you said, can be sold from the dealer's backlot. But some of those vehicles need to be repossessed vehicles, rental, defleet vehicles, off lease vehicles, and a lot of dealer consignment in markets where dealers are very space constrained, et cetera. Get that car off my lot, get it to an auction, marshal it inspected, secure it, sell it from there. So I think it's going to be all of the above, you know, but the equation has probably shifted. I think the equation has probably shifted. And then the other question is, you know, the inlane experience. And you touched on that. And again, we're not today running cars in lane at any of our auctions. And I don't foresee us doing that while we've got lots of COVID cases across the country before we have a vaccine. But we watch that, we debate that every week in this business. But we do allow dealers to come to our auctions. They can come kick the tires, they can walk the lot, they can bid in person on sale day if they want to. And you know, what we're finding is there certainly are some dealers that want to do that and we absolutely want to offer that. We'll always continue to offer that. But a lot of dealers are increasingly comfortable with the online tools. And we also have to acknowledge that, you know, and a lot of dealers telling us, you know what, I never thought I'd say it, but I, I'm good. I can see the car. I'd like maybe the condition report to be a little better. I'd like maybe if you could change this thing over here. But other than that, I'm feeling pretty good about being at my dealership and doing my buying from here.

Totally. And you know, that kind of leads us into the question of, you know, our resilience as dealers right now. We're a tough group. We're hard. We don't embrace change very well. You know, we've been selling cars off our lot the same way for years. You know, Carvana has, you know, shoved it down our throat that we shouldn't be doing that. Vroom has all these, all these pop ups that I think they're going to term themselves as technology companies instead of car companies right now to get a little more investor money. But you know, how have you seen, and you talked about this second ago, how resilient are the mom and pop dealerships compared to these bigger people, to bigger companies?

Listen, I think, you know, there's A word I think of when I think of dealers, it's resiliency and you know, just dealers I think have always defied the odds. And there have been people predicting that, you know, certain outcomes for car dealers and they've all been wrong. Dealers find a way to grow and prosper. That's been my experience. And at the end of the day, dealers provide a very valuable service for, you know, for the automotive industry and for the consumers out there. And I think that that will continue. I think we've been helped, frankly, I think we were. There was a lot of fear like I said in April, and we were helped by a market that rebounded, maybe faster, stronger than any of us thought, you know, and that's good. We should all be counter blessings for that and hope it continues. Right. I gotta tell you, I'm not maybe the part of your comment I don't agree as much with is resistant to change. I find a lot of dealers pretty progressive, you know, and I even talked to some dealers, part of my presentation at talked to a few dealers and you know what? These guys were embracing new ways of doing business way before COVID you know, reaching. How do I get to my reach my consumers online, different avenues to merchandise, my vehicles, acquiring vehicles. So dealers are in my experience, pretty progressive. And I guess what goes with that, if you're a dealer and you're not, then you got to realize the dealer across the street probably is. So if you want to keep with it, you got to be open minded to that. And maybe the last one you mentioned, you know, the Carvanas and rooms, I do think, you know, this is something I touch on as well. I see what those guys are doing. They're really changing the customer experience about how I might acquire or trade in my used vehicle. And they're kind of showing the consumer that there is a different way. And I think that that really is a competitive threat to independent dealers. You know, maybe not so much today because of the price point they're selling and it's maybe a bit of a different price point. But you know, these. I think the future of all industries is going to be more and more digital. And that goes to the retail side and the wholesale side. And you have got to figure out how do I create a great customer experience and enable that through a digital, you know, a digital process. Maybe not 100% digital, but I need to be able to create a good digital experience. I need to have a good digital brand. So the consumer even looks at me, do I have the five star rating do I have the 4.5? That kind of stuff.

So, Peter, what have you guys, as you've gotten the feedback from the dealers, what have you guys done to change or improve that customer experience for us, the dealers, when we interact with ADESA and cars and the different platforms you guys have, is there anything you can tell us? What should we either guys who haven't been there, what do we experience? What are we missing out on? And maybe what's coming down the pipeline from us as dealers, making that a more seamless. And like you said, it's that transparency. It's that trust that we can go there and know we're getting what we're getting.

So if I go in. Good question, Jeff. If I go into some of the stuff we have been working on, really trying to make that again, more seamless, more transparent experience for our buyers. You know, many, many of whom are independent dealers. Things we've done, you know, last year we rolled out a new simulcast. Very thankful we did that because we got a lot of positive feedback from dealers. And then with sort of a full transition to simulcast this spring, it became really important that we had that. We did launch a Simulcast plus product, a more automated simulcast that enables more sales and stuff like that. On Trade Rev, we listened hard to our customers. They had. They wanted a simpler buying experience and a simpler auction format on Trade Rev, and we made that change back in March. And we've seen a lot of growth on Traderev since making that change. So that's been positively received by customers. We're focusing a lot on things I already mentioned, but we want to be able to do an even better job inspecting cars. You know, the dealer needs to understand when they see the car, this is an accurate description of the vehicle. I've got a confidence what's going to show up, what's going to roll off the truck if I buy this vehicle? The titles, the funds, the customer support. I mean, they're pretty big changes for us because historically our model was, you know, each auction was its own operating center, and each auction kind of did things just a little bit different. You know, 80% the same, but 20% different. But something we've noticed through this period now is dealers are logging into more auctions because they're coming in digitally. They're not just going to the local auction, but they're going to five auctions. Right. Or they're just searching a radius. Right. And dealers want to know that I'm going to have a consistent experience no matter where I'm buying from. And that's just normal. That's what we all want. So these are the kind of things that we're focused on. I'd say we're a good way down the path, but we're, you know, we know we've got work to do and we're working on it.

Yeah, Peter, that's so important. And I've been buying online simulcast ever since it was. The ability to do it was. And the one thing I could. I can say about ADESA is your condition reports are exactly the same for every auction, which I can't say about the other other competitive in the market there. And I really appreciate that y' all have done that. Wholesale volumes have been a real issue over the last, I guess, since March. And we're used to a normal tightening in March, April of wholesale markets. What I've seen is a lot less repos in the lane. And I know that there's some moratoriums and this, that and other. What do you see about, I guess with new car production down as well? What do you see about the volume? Are we. We looking to have good volume here soon or is we're going to still in this, you know, tightening right now?

You know, I am hopeful, Luke, that we'll see some volume improvement here in the next, you know, quarter or two and let me sort of step through some of those things. But I'll also say we haven't seen it yet. Okay. And I also. This is another thing where it defied expectations because back in April, people were telling us we've got this glut of cars. There's going to be an ocean of repos. You need to take out more land to store all these cars. There's going to be no demand. You know, it was that kind of a situation and we ended up with 180° opposite of that. We ended up with incredible demand and not enough supply. So I think when I look at the functions, one is new car production was curtailed by Covid. Right by factory shutdowns. The OEMs are still struggling with that. Frankly, social distancing in the assembly plants makes producing new cars a little tougher. Hopefully that is getting better. Hopefully continue to get better off lease because new cars are scarce. Off lease cars are in high demand and a lot of the franchise dealers are just buying those up. And frankly, because prices have gone up, lessees aren't even returning them because their residuals below market. So they're like, hey, I got equity on this car. I'll just buy it. So there's Been less off lease, coming through repo moratoriums. You mentioned it, that those have been real. Repos have been like about half normal the last few months. And, and then dealer consignment, dealers, dealers, cars are scarce. So nobody's taking, you know, they're not taking the same number of cars to the auction. So all those things have played in. So here's what I think is happening. We're seeing some evidence of increased repo activity. It's not normal yet, but it's up about 20% relative to what it was maybe two months ago in terms of assignments. So I think we'll start to see more repos in the auctions fairly soon. And I'm hoping that as new car production ramps up and as prices sort of moderate a little bit, we'll see a more normal supply demand equation. But I wouldn't necessarily predict it in Q4. It might be the start of the year before you get there.

It's gonna make for a tight Q2 next year.

Yeah. If you put that on top of tax time and people wanting to stock up for the first of the year and I mean, that seems like it's gonna be. They're gonna even out.

I have heard one prediction saying again, you mentioned repos, that repos this year will be about quarter of a million fewer than normal, but next year, likely half a million more than normal. I can't really comment on that. I think there could be some validity in that. We'll see.

Well, Peter, you would have. A car as a whole probably has a bit of a good gauge for how many repos are coming. Do some manufacturers store repos at your facilities or can you see them coming in?

We have some good insight from two things. We operate a technology platform called the recovery database Network rdn. And a lot of automotive finance companies use that for climate of their repos. That gives us kind of a one month preview.

Okay.

You guys operate rdn?

Yeah, we operate rdn. Yeah, we know about that company. Got it. Okay. And then you're right. Most repossessed vehicles end up at auction. Obviously that could be a desta or it could be a competitor auction, but we certainly. These cars have to be stored. There's a process on a repo before you can sell it. So the auctions are really. And that's where, you know, one of the areas real estate is really valuable in the repossessing process.

Sorry to interrupt the podcast, but great news. The independent dealer podcast has its official first sponsor, Luke. Our very first sponsor. Yeah, the great guys Tim Taylor Byrd over at Dealer Re have stepped up and said, hey, we're gonna sponsor the podcast that allows us to continue to make the episodes. It allows us to increase our production value, expand our exposure, get the word out to more people. Our promise to the podcast nation, Luke, to our listeners, to those that tune in, is that we will not turn, turn this into some sort of paid ad nonsense. We are only going to accept sponsors from companies that we use in our own dealerships and that we stand behind and know will benefit those that listen. Dealer Re is definitely one of those companies, right, Luke?

For sure. And you know, the history I have with Dealer Re goes all the way back from 2011. I've known Taylor probably since he was in high school and I've known Tim for all that time. Really good people. This is a quality company. They've been doing my reinsurance since 2011. And for dealers out there don't exactly understand what reinsurance is, go back and listen to our podcast on it. But if you understand to a point what reinsurance is and you want to investigate it, you need to contact Dealer Re. That is the single best decision I've made in the car business was setting up my reinsurance company. And I know that sounds like a huge statement, but it is the truth. It will change your life, it'll change your business and change the way you do business, and it'll help your customers as well. So, Jeff, I can't recommend anyone more highly than delauree.

Yeah, it's a great first sponsor for us. That's episode 19, if you want to go back to 19, that's May 16th of 2019. We spoke with Tim, we talked all about reinsurance and how it's going to benefit your dealership. Tune into that, give the guys over there a call, explore your options. They're doing a special for our podcast listeners, so if you do call them and you say, hey, I want the podcast special, they're throwing in the College of Automotive Management. It's a federal compliance ethics course that's done online. So this is so that you can stay compliant inside your dealership. You can teach your people. It's like a $500 value that they're giving to the podcast listeners when you get signed up with them. We had to have something to sweeten the pot. And also they know that we sent you.

Yep. And it's gonna be you get this done. You won't regret it, I promise you that.

Alright, back to the episode. Yeah, that's so interesting to have that side that Insight and that view, you know, you might not get access to some off lease numbers, you know, or the specifics of what's coming in. But for you guys to have that kind of insight as to assignments, I mean you're seeing a two to three to four week preview of what's coming. And you also see what lenders are kind of starting to, you know, pull back those restrictions. You know, the big guys start really saying, hey, alright, we've waited long enough, we gotta get, we gotta clean this bad debt off before the end of the year or whatever their situation is. You're gonna see that coming down the line. That's, that's awesome.

Yeah, Jeff, I'm looking at that statistic every week because it is predict, it's a predictor of or volume, you know, at least at some level. So I want to see it increase because I want to see a more normal supply in our industry.

Yeah, see I do the poor man's version where I follow the repo groups on Facebook and see who is talking about what. And then I look at the new car groups and I look at them posting about how they just got three truckloads of Kias in OR three. You know what I'm like, okay, so new cars are starting to flow. The repo guys say their assignments are starting to flow. I feel like that's gonna come together at some point.

If you put it all together, I'd say the odds are we see some level of increased supply. Maybe not all the way back to normal, but I think we've been 20ish percent below normal the last month or two. I think we're gonna get closer to normal.

Have you seen a drop in demand in the last 30 days?

We've seen a slight weakening of conversion in conversion rates. They were exceptionally strong in July for sure. June, July into August. I would say they're still strong relative to historical sort of norms, but they're certainly a few points weaker than they were eight weeks ago. Yeah, for sure.

Back to the norm. And that's Luke anecdotally, I think he said that even recently, Luke, that I'm anecdotally seen some regular prices, a few more no sales.

I think that's the first thing to look at is the no sales. And when you see the no sales, you realize what's going on. And certain cars only bringing all the money. 60 days ago, every car is bringing all the money. Now. It's gotta be the exact right car to bring all the money is what I see in the market.

And that's often fairly normal this time of year too. A little bit of a correction in the fall. Right. So it's not necessarily unusual. Yeah.

And especially with dealers, I think getting used to the digital buying, you're not, you know, you're gonna step up on something with a great seat and you know, is in the wrapper, but you're a little more scared on the projects because maybe you got burned or those things.

That's probably been the big story really. If you look at our wholesale business, the significant, the thousands of dealers, tens of probably tens of thousands. Really more than 10,000 even at our company who have kind of adopted online buying, you know, and I'd say generally you're having success with it would be what I would hope. I mean it's not obviously maybe it's not for everybody, but it certainly seems to be working for most. And a lot of comfort being established with that.

Yeah. That seems like how you really crack the code of wholesaling digitally is how do you digitally replicate me being there with my hands on the car. And like you said, technology will get to the point where you maybe put the car in some booth and it goes on a virtual test drive through the gears and you hear the engine and it's a 360 video and you can smell the thing somehow. I don't know. But like you crack the code of me physically being there, especially at my price point. You know what I'm saying? I'm cheaper. Everything's mostly red light that. Yeah, whatever that recipe is. But really the point is dealers right now getting auction values and book values wholesale to retail. Between what you're seeing at the auctions and what nada and Kelly is telling me this car's worth, that's where the hardest rub for me is like, you know, you guys, we adjust auction values on a, you know, weekly or 30 day rolling or whatever it is. Why is it that the banks and the books don't get on board? I just don't understand it. I probably got half my inventory that I am into full retail right now.

That is a good question. I don't know that I'm the best place to comment, but I will say, and this has been sort of. I even had a conversation with the coworker on this this week, as our digital transaction volume gets so much more liquid, which it is today. Right. Everything is digitally everything and everything digital leaves a footprint. Right. That's the other thing. Right. So you know, our ability to give a dealer, hey, this is what these cars are transacting for right now, not a week ago, not some average on it, but like you know, data driven through the technology, like for like kind of vehicles. I think we can, I think we can do a better job there. And then again that ties into another part of my message at Niada is just, you know, leveraging data. You know, one thing I will say about our industry, you know, there's a lot of strong personalities, you know, a lot of people who, you know, go on their gut and their instinct and it served them well. But I'd say there's also place for data, you know, in, in all our decision making. Right. And maybe I'm probably a pretty heavily data driven kind of guy. I look to really try and validate my opinions with what do the facts say. But I think the tools that are available to dealers today, whether it's how to price a car, how to reach consumers, there's a lot of, a lot more data around than ever before. And you know, leveraging that is something probably we could all benefit from.

Is that what good dealers today, good dealers today? Are we using data to be more profitable? Is that what it takes to, to be successful?

I think it is. I think it's one of the right cars to source. What are the most effective ways to reach my retail consumers? I was talking to one dealer telling me about the online systems he's using to reach consumers and how every sales lead is traceable and trackable and metrics against that. I think with digital buying I see a lot of dealers buying further afield. You know, they were going into their local auction, they were buying within their metro or whatever, but now they're looking within a thousand mile radius. They're saying hey you know what, I'm not limited to this. I've got a much and so what do I really need? What are the vehicles that are really going to work for me? You know, not just what happens if you're running down the lane today because I'm here, you know, that is so important.

I had that problem for years. I didn't understand that selling what I can buy at my local auction isn't necessarily what the people that I'm selling to won't. And when I learned to, when I learned to fish in a bigger pond, I quickly sold more inventory because I had the inventory that people wanted.

Exactly right. And you know, it sometimes surprises me when I see a 5 or $6,000 vehicle getting moved. You know, 5 or $600 of transport, I think, well that's like 10% of the value. Of the vehicle there, it seems like nuts. But on the other hand, that dealer, I mean, they're not doing that for fun. They know that, hey, it's worth that, you know, all in. That's 5,500. That's the right car for my store. And again, I think, you know, the data and the digital can help you exploit those types of opportunities and give you an edge.

Agreed. Well, Peter, we, we really enjoyed having you here. Jeff, you got anything else?

That is awesome, Peter. I mean obviously if people, they're going to check out your NIADA session again, I don't know if it already aired or if it's going to air. And then to connect with you further, I assume LinkedIn is the best way to follow me.

I am on LinkedIn. You can connect with me there. Also, Peter KellyarGlobal gets an email into my inbox and yeah, would love to connect and hey, I really appreciate this opportunity gentlemen and it was great talking with you here today as well.

Thank you Peter.

Thanks Peter.

Thank you both.

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