#170 - Auction Of The Future w Steve Jordan

Welcome to the independent Dealer podcast with hosts Luke Godwin and Jeff Watson. A podcast by Dealers for dealers. Here we go.

Good morning, boys and girls and children of all ages. We have a very familiar person on the podcast today, Mr. Steve Jordan. But now he has a new role as senior vice president of dealer sales for CARB Global. And thanks for being with us today, Steve.

Yeah, Luke, it's great to see you. Hope you and the family are doing well. Yeah, it's great to be on. When the request came through, I was like, yeah, we got to do that deal. We love those guys.

Well, we really appreciate it. And you know, you have a lot of interesting things to talk about with CAR Global. And you know, the one thing I want to do real quick is just say thank you for your leadership and the association for I guess, 10 or 12 years, however long you were there. We really appreciate it. And hopefully you'll be around at some conventions so we can all say hello.

Well, I would certainly love to be there. I know it's exciting to. It's exciting to see kind of where we are in the recovery and certainly with COVID and vaccinations and all that goes along with that. So I know those with cabin fever are coming out of the woodwork. And it's actually really exciting to see people and people in the association and in the industry getting back to kind of business as usual and doing all the things that we love to do. And look, this is an industry based on relationships and when you can put people together in rooms and do all the things that come with that, it's. It's just fun. Magic happens.

That's so interesting you say that because innovation happens that way. It's hard to happen when you're not in the auction lane or not at convention. And I believe some of the, I guess, issues. Not issues, but some of the surprises we've had in the auto industry here lately have come because we don't have that communication and the camaraderie that we. We've had. So, Steve, tell us what your position is and what you do now at Car Global and how do you help dealers?

Yeah, that's a great question. Thank you for asking and thanks again for having me. It's great to see you. And you know, I would just say my role at CAR Global is a senior vice president of dealer sales. I'm basically the head of distributed sales force across the United States and Canada to help provide end to end wholesale solutions for all of our dealers in the industry. Independent dealers, franchise dealers, whatever they're looking for and whatever they're looking to do to make wholesale easy, we want to try and build solutions around what that looks like. So, you know, with ADESA, we've got more than 70 locations in North America. In Canada, we have a really good digital platform up there. Trade Rev. We did sunset the Trade Rev platform in the United States with the acquisition of backlog cars. So I've spent most of my time since I joined Car Global learning the trade rep platform, learning the distributed sales team that we have in North America, Canada and the United States, and also integrating the two sales teams together from backlot cars and the Trade Rev teams in the United States. So that's what I've spent most of my time, almost 100% of my time doing since I joined the team. I can tell you the early successes are very, very positive.

That's great to hear it. And you know, I was going to wait a little bit later to kind of dive into the trade rep backlog situation. So several years ago I was using Trade Rev and it was before some of the other platforms that come on, I really like Trade Rep. What is.

Why did Car Global, I guess decide.

To separate the two and move trade back to its home country of Canada and backlot in the US what was the situation there?

Well, just very high level. You know, tradewright was founded in Canada and was adopted. The Canadian dealer community adapted to the trade drive platform very, very well. It's still very well received up in Canada right now. Not that it wasn't received in the United States, but you know, it's two different markets and the needs and demands of the dealer community in the United States versus Canada are a little bit different. And you know, I would also say that Car Global has a rich history of growth by acquisition. And as we continue to look forward in the digital transformation for Car Global, the backlog car platform brought some things to the forefront in the industry. And for Car Global that we thought would really be very positive game changers for the dealers in the United States.

That is interesting. I believe.

I'm not sure about this, but when Traderev came down it was an auction platform. Is it still an auction platform or is it moved to the backlot platform?

In Canada? We're still using Trade rav. It's a timed auction and that's what dealers in Canada have really grown to love and adapt. By comparison, in the United States with backlog cars, it's a three day marketplace. We feel like that's a bit of a differentiating factor not only between TradeRev but other digital platforms in the United States where, you know, as a three day, as a three day marketplace or as a marketplace, you can list a car for three days up to three days. But what we found is 83% of the cars that are getting listed are selling within 26 hours of listing on that marketplace. And look, I guess another way to think about it is, you know, we also feel like it more closely aligns with traditional consumer behavior. So when, when you and your wife, you know, if you need a sofa or you need a bed or you want to buy a new rug for your living room, you go to Amazon or you go to wherever online and you're like, well, let me have it delivered. And you want to have the flexibility of being able to go to Amazon and order a rug for your living room and have it delivered whenever you want it. We feel like the same adaption is true in the car business where if I'm a dealer and I'm trying to sell or buy a car, I want to be able to have the flexibility to do that when I want to do that. And we feel like creating a marketplace of sorts allows for the dealer community to be more flexible around when they're buying and selling, as opposed to saying, hey, I need to buy a rug for my living room, but I can only buy it at 3:00 clock on Thursday between 3:30 or, you know, 3:00 clock and 3:20, you know, and if I'm not on Amazon at 3:00 clock to 3:20, well, I don't have the opportunity to buy that particular rug. Right. So if I want to go buy a car or I need to buy 10 cars, we have an open marketplace that allows dealers to buy and sell essentially whenever they want.

So my pushback to that would be, yeah, the traditional consumer does it that way, but the dealer has never done it that way. We've always been conditioned to beat an auction at a certain time or bid on cars. So I think there's a little bit of difference with, I'm not saying it's good or bad. And it seems like there was already marketplaces built to that. I guess where I'm going is this. You brought up the acquisition and how Car Global built kind of has built their brand on acquisitions. From my research, it looks like car has spent about $630 million on backlot cars and trade revolution to build a platform that maybe they already had. What's the advantages of not just taking something that Odessa was already using in their dealer block or this. That and other, and building out a portion. How does that, how does that work going in a different route?

Well, we don't really view it as going into it in a different route. We view it as just augmenting the current product and service offering that we have. So for example, you know, and, and I understand what you're saying. I mean, in terms of, in terms of the auction experience historically has been, you know, in Dallas, the ADESA auction runs on Thursdays. And you know, you go out there, you preview the, the cars on Wednesdays, you, you go and you buy them on Thursday. Right. So historically that's the way the auction process has gone. What I think Car Global is looking at as we continue to modify and go down this road of our digital transformation is looking at the auction as a product and not necessarily a time period. Right. So if I can have the ability to buy and sell a car in an open marketplace like backlog cars, and that works for me. And by the way, the, the market is responding very positively to that, you know, then why not have a product and an offering that can meet the dealers where their interests lie? Look, I'll tell you, you know, there's, the auto industry is rich with history too, in auctions and running in the lanes and, you know, all of those things. The industry is changing and I think Covid and the pandemic really accentuated the need and the desire that a lot of dealers had to transforming how they want to do business. Right. So we don't look at it as, hey, this is Car Global trying to tell dealers how to run and do business, but based on what dealers are telling us they're looking for and they're wanting. We're trying to provide digital solutions in any format that they're interested in, you know, in using.

So does Car Global see a point in the future where the dealer to dealer platforms such as trade rev and backlog cars being bigger than the actual physical odessa locations and number of cars and I guess sales, I would say.

It'S all dealer to dealer, whether you're buying at the auction and having that dealer experience there or if you're buying on a dealer to dealer digital platform. And I guess that's kind of the point of looking at the auction itself as a product as opposed to a place or a physical location. Right. So for example, I could tell you in, in our earnings call, our first quarter earnings call, Peter Kelly talked about how 100% of our cars in the first quarter were sold digitally and 54% of those vehicles were sold off premise, 46% were sold on premise. Well, by comparison to last year, that's about a 10% increase in off premise sales versus what we just experienced in Q1. So 100% of the cars that Car Global is selling are 100% digital. So when you're doing the kind of volume that we're doing, whether it's on Open Lane or Odessa.com or simulcast, simulcast plus backlog cars, trade rev, it starts to add up to very significant market share and very significant volume. When you can say that 100% of the cars that you sold as an agency are digital.

Yeah. So it appears that it's a move away from the physical location. And I know that that actually is helpful for Car Global because it cuts down on cost. How is it helpful for the dealers? Because what I see and what we hear a lot is the logistics of moving cars because they're not centrally located creates a problem for transportation. It creates problems for arbitrations at times and maybe the CRs aren't as good as, as the actual touching the car. How do you address that to dealers?

No, look what you just touched on, you know, condition reports, arbitrations, transportation, those, those will always be, those will always be touch points with dealers in this process. Right. Whether you're buying in lane or you're buying a car in lane that you just looked at, that you saw run through the lane, there's still always going to be arbitration issues, there's going to be condition report issues, there's going to be like, that's just part of the challenge, right? I mean those are just operational challenges that anybody has. What Car Global is focused on is how can we eliminate as much as we can issues around condition reports, transportation arbitration. I can tell you specifically with backlog cars are the arbitration rate is less than 1%. And a big reason for that is because of how the inspection process works related to the traditional condition report is executed at a physical auction. So for example, with backlog cars, we'll send an inspector out that's a mechanic to look at the car, inspect the car. And they don't, they don't use a grade necessarily, but they're, they're going to be mindful of putting the condition accurately on that, on that inspection report so the buyer sees what they want to see. Like we want to see the scratches, we want to see the dents, we want to see the PDR work that I'm going to have to do if I buy this car. We want to, we want to hear from a mechanic, engine purrs like a kitten, Right? Shift. Well, you know what I'm saying, It's got a tick, but it doesn't have a knock. There's a big difference. Right. So some, some people might think that that's oversharing, but our buyers really like that because they want to know what they're buying. And we leave it up to the buyer to make their own subjective decision about, well, is that a 3.6 or is that a 4.1 or like. So we feel like that part of the process is really effective and our buyers are really gravitating to that. The other thing that I would say that's different with the backlog cars process is the selling dealer is not the one making a representation about the condition of the vehicle. It's backlog cars and our mechanical inspectors who are the ones that are doing the condition report and making the representation to the buyer base. And if there's a difference, if there's a, if, if there's a difference in expectation or if there's a difference in representation, that doesn't go to the selling dealer, that comes to us in our arbitration department. And, and that's why I feel like it's, it's important to note that that inspection and condition reporting process has been very successful for our buying dealers because we, we want the, the buyer to keep that vehicle and we'll, you know, if we miss something, we'll own it so it doesn't fall back on the seller, it falls back on us.

So this creates an.

Interesting situation that the condition report done for cars on backlot is different than the condition report done at Odessa sale. Is there any thought process or any action to have a better condition report at the physical auction now because of this?

Yeah, so that's a great question. The short answer to that is yes. We've got a customer experience team that's working very diligently every single day to make the customer experience more seamless across the various platforms. Right. So I can tell you, prior to the backlog cars acquisition, there was already work being done behind the scenes to make the Odessa condition report more compatible and in more alignment with the trade rep condition report so that there's consistency across all of the various platforms with the condition reporting, with the checking out process, with single sign on, your ability to sign on through, you know, Odessa to backlog car to trade rep, to all the different. Like one sign on gets you to all of it. And yeah, so we're not quite there yet, but there is a lot of work being done behind the scenes to get us there because we know that's a big pain point for dealers.

It is.

And you know, going to. So Destin.com and.

Not seeing the same thing you see or going to backlot. Not seeing the same thing. Yeah. I mean it's a pain point and I think y' all and other auction companies need to look into fixing that. So if this virtual backlot type of marketplace works, can it work for. If it works for dealer trade ins and dealer to dealer, can it work for fleet lease and repos volume that you see there?

Does that.

I mean, is it possible?

100%. We have, we actually have. We actually feel like it works better for some of the commercial customers, fleet lease customers, some of our major dealer accounts. The ability, the ability to scale it up and flex it up or flex it down as needed is part of the charm, if you will, of the digital platform. So yeah, short answer to that. 100%. Yes. We feel like it scales across multiple verticals in the industry. Okay.

So we're going to go back to the supply chain issues that we're having right now.

Yeah. Which are wide and varied. It's a crazy market. Crazy market.

I mean, honestly, you know, people say unprecedented. They use that. But I've been buying cars since I was 12 years old, so date me real quick. That's 30 years. I've never seen anything like this. Prices. I buy a lot of cars and for me to just miss a car by $3,000 is unheard of really, until the last month. What is car seeing on the inventory side or are we going to ever get out of this problem?

Yeah, I mean we're seeing what everybody else is seeing. I mean prices are up, values are up across just about every single class up over end of 2020, you know, and above pre Covid levels. I mean it's, it's kind of this perfect storm of, you know, high demand, low supply. Anytime you have the manufacturers just stop making cars like they did during the pandemic. That's always going to create supply chain disruption. Now you've got the chip shortage. Now you got the, you know, the, the pipeline thing. You know, out on the east coast. There's, and you know, now you got stimulus money. You've got, you've got tax time money, you've got a consumer base that is flush with cash. They, they've got cabin fever like we talked about earlier. They're starting to come back, you know, to life as normal. They've, you know, so demand, like all of that contributes to exceedingly high demand, limited supply. It's a perfect storm of, you know, opportunities to sell cars that you would buy wholesale and sell them wholesale almost at retail levels, you know, which is what I'm sure you're seeing, just as we all are. It's crazy.

What do the actual numbers look like? Do you have any actual numbers from.

Pre Covid to now? The actual amount of cars that are there at cars locations or at the Destiny locations?

Well, we know new car sales are, you know, about 14 and a half million. Might be back to 16 and a half million in 2021. That means more trade ins. You know, we know there's, in 21, there's, there's probably about 4 million or so lease returns that, you know, we're hoping we'll, we'll, we'll flood into the market. You know, repossessions. That's, that's one of the things that everybody's kind of waiting for right now. We don't, we don't see a big change in that coming down the road anytime soon for all the reasons that we know, right? Yes, customers have cash. There's not a big appetite right now to repossess vehicles. You know, so a lot of the big lenders are, you know, less likely to, you know, make, make that an issue. You know, rental cars are, you know, we expect that will likely continue to, to be a challenge. And those are big parts of, those are big parts of the supply chain right there. You know, trade ins, Trade ins will probably be the biggest contributor to used car inventory over the next, you know, you know, through, through the rest of 21. But, you know, not great news on the, on the chip shortage. They was reading an article yesterday where they said the chip shortage may continue through 21 and maybe bleed even into 22. So, but we'll see. I mean, we're all in this thing together, right? It's, it's, it's a, it's a fun time unlike anything we've ever seen.

I mean, so I guess a question that comes from that, you know, Desa has all this physical property sitting around and if you don't have those repos that continually come in, I mean, is car thinking about shuttering any of those spots or is that not really on the table? Do you know?

No, that's a great question. We actually feel like it's a differentiating factor into our value proposition. So much like Amazon or Walmart.com or Amazon.com or whatever, they've created this kind of network effect with this marketplace where you buy and sell goods online, but you still have to have the distribution centers to buy and sell to move the goods. So specifically with the automotive industry, you can't recondition a car in the cloud, you can't do a wholesale inspection in the cloud, you can't marshal cars in the cloud. You can buy and sell cars on the cloud and on a digital platform, but you still have to have the opportunity to recondition vehicles, do post sale inspections, marshal vehicles if you need to. And we really feel like in the future, as we continue to move down our digital transformation, our position with 70 plus auction locations in North America really is more of a differentiating factor in a positive way than those of our digital competitors who don't have that. So let me give you another real time example. So a lot of sellers may say, you know, well let's try, let's experiment with the digital first opportunity and if it, you know, and if it doesn't sell on backlog cars, well let's just push it to the closest to desta location and have it run in lanes there. So we know based on our data that some cars perform better online than maybe an overage frontline unit that's been sitting at a franchise dealership lot for 90 days. That car may perform a little bit better in lane at ADESA as opposed to backlog cars. Although I do caveat that with over the last couple of months we've more high end volume on the backlog cars platform than we've ever seen. That $7,500 car or higher is really starting to pick up as a percentage versus what we've seen in the past.

That is interesting because I've seen the same thing I sell on another virtual platform and I know which cars do really well there. And I've also started to figure out which cars need to go to physical locations. And so I really think there's a synergy there that some places don't have and of course losing money that way. So I got a question that I don't know what the answer is. Can you buy a car on backlot and have it reconditioned at a physical desert location or do you all for that situation?

Yeah, certainly. And I think that's what gives us the unique value proposition, right? We have the ability to go into a deal dealer and say, hey, if you're going to buy it, let's recondition it at a physical. So for example, if you're in Columbia, South Carolina, you buy a car from Dallas, Texas. Well, let's Ship it to the Odessa location nearest you. We can recondition it, get it frontline ready, deliver it to your. To your, you know, deliver it to your location and your, you know, sticker it up, put the buyer's guide in there, and you're ready to roll.

And that's a very helpful thing for so many dealers. Cause so many dealers are having issues with time to line and getting cars frontline ready. I mean, it's probably the biggest pain point of any deal besides sourcing inventory. So I'm glad that, you know, you have that option.

You know, one thing I noticed last.

I guess it started maybe last summer, was cars or Destiny's use of this virtual auctioneer during a live sale.

Is that something we're going to see.

More of in the future? Is that, Is that the new thing? Some people, Some people like it, some people don't. You know, it's a little more timely.

What do you.

What do you see there?

I think it's a fair question. I would say the market will depend on, like, what that looks like going forward. We know with Simulcast and Simulcast plus specifically that there is some demand for that. And I don't know that it's going to be the wave of the future. But to the degree that virtual auctioneer and that Simulcast plus platform makes sense for a dealer, we've got the resources to provide that and do that. But look, you and I both know a live auctioneer at the auctions, even without cars running through the lanes, is still a very lively and provocative experience. It's just fun. It's just a big part of the industry. But as we continue to move down the digital opportunities, to the degree that there's some interest or market demand for it, we've got it. That's very.

It was kind of freaky the first time I dealt with it, but I got used to it. I mean, just like, I mean, you know, you've been around car dealers, you know, for probably 30 years now. 20, 30 years. And we're a resilient bunch, pretty stupid at times, pretty smart at others, and, you know, we just have to adapt or die. I mean, I think pretty much the same with any industry.

I mean, look, the other thing I would say is, you know, most dealers are risk takers, if nothing else. So it's kind of like playing poker with a dealer or playing blackjack with a dealer or playing blackjack with a virtual dealer. You know, I. Some people. Some people may prefer having the blackjack dealer in front of you. Other others may prefer to have the blackjack dealer, like virtually. And you know, I always, I always walk by those things if I'm ever in Vegas and I'm. It never ceases to amaze me how many people are playing blackjack virtually. Yeah, it's crazy.

Same way I like, I like seeing the person that's taking my money.

No doubt.

What else is coming at us from Car Global that dealers should be aware, aware of and you know, what's new? What can we, what can we do to deal with this market right now?

Yeah, I think that's a great question. I would say, you know, know your lane and know your lane in the sense that kind of like to your point, know what cars do better online versus in lane. Certainly we can help, help dealers figure that out. We've got tons of data, we've got tons of expertise, you know, Tom Cantos, our chief economist and you know, we've got access to, you know, auction net data, odessa data, you know, all kinds of data with backlog cars. We, you know, we know like for example, we know cars that are about 7,500 or less are getting shipped about 319 miles to the buyer base. Cars that are about 10,000 or so are going about 455 miles, 10,000 or more, about 567 miles. Right. So, so we know, we know that based on certain price bands, the market grows and the market can expand. And we feel like that's also a differentiating factor between our digital platforms and some of the in lane opportunities. You know, we always hear dealers say, well, I get a ton of like the market just brings all the money. When I go to a local independent auction that may have two or 300 dealers in the lane. But, and I agree that is a fun, very lively experience. You know, something that the market is certainly used to. But by comparison, when I can list a car on backlog cars and or adesa.com and know that I've got 22,000 buyers looking to buy that vehicle. We know retention is going to be up, we know conversion is going to be up. We know the reach is going to be up compared to what people may be seeing in a local auction with, you know, two or 300 dealers there.

I think that's a very, a very.

Important point that many dealers forget about. So many of your smaller independent dealers depend on the local auction or they depend on buying virtually from dealers around them. And what happens is dealers don't understand that they can get, you know, the cars that they're looking for don't always show up in their market. And I believe that your backlot and DESA and other auction platforms allow us to buy the cars we need from.

All over the country and dealers need to remember that.

I appreciate you bringing that up, Steve. Steve, we really appreciate you being here today. We have some great knowledge. We appreciate you telling us, you know, a lot that we don't know about where the industry is going. Thank you for being here.

Happy to do it, man. Always good to catch up and see you. And hopefully you and Alexis are doing well. And, you know, I know the girls are growing up and you guys are having a good time.

Well, thank you, Steve, and we hope to see you soon.

You got it, buddy.

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