KAR Auction Services in the second quarter continued a string of double-digit declines to its bottom line, as it reported a 40 percent drop in net income to USD $55.6 million. That was on operating revenue that rose 15 percent to $719.1 million.
The rollout of TradeRev, the Toronto-based mobile wholesaling platform KAR fully acquired in 2017, continues to hurt the company's results. KAR executives said in February that the expansion of TradeRev is expected to weigh on its bottom line until 2021.
But factors at ADESA also pulled down results in the period. "TradeRev was in line with what we expected," KAR CFO Eric Loughmiller told Automotive News on Wednesday. "But our profitability was down and our margins in the ADESA business were down specifically because of what we describe as ancillary and related services."
High Tech Locksmiths, an ADESA subsidiary, incurred an inventory loss of about $5.4 million, and a software conversion at AutoVIN also dinged results. ADESA’s Canadian unit is the largest auction group in the country, with 15 locations, according to its website.
KAR executives said they expect the company to fare better in the second half of the year.
On Aug. 1, the company aligned its TradeRev and ADESA businesses to prevent overlap, CEO Jim Hallett said.
"Quite frankly, as we reflected on it, we were actually competing with each other," he said. The two entities are now better aligned to prevent overlap. "My expectations now are high that we will have accelerated growth with this new strategy," Hallett said.
Shares in KAR closed down 6.4 percent Wednesday to $24.34.
KAR acquired a 50-per-cent stake in TradeRev in 2014 and bought the rest in 2017. In that time, KAR has focused on expanding TradeRev throughout the United States and into the United Kingdom.
The company is not disclosing the number of dealers using TradeRev, citing competition. But Loughmiller noted that about 117,000 vehicles were sold through the platform last year, and the company wants to grow that figure to about 200,000 in 2019.
Hallett emphasized that he's not worried about TradeRev cannibalizing business from ADESA.
"Our total dealer consignment is 20 percent of the North American market. That's our share," Hallett said, adding that it's "underweighted."
"So I'm not worried about cannibalizing vehicles at the ADESA physical auctions if [dealers] want to go on TradeRev, because that's where the world's going anyway," he said. "What I'm really focused on, I'm really focused on the 80 percent that we're not getting."