Used car platforms (part 1)

US

I did an in-depth analysis of the used car platforms on the different continents: US, EU, South-East Asia (including India), China and APAC.

This story focusses on the ones in the US.

With used car platforms I really mean used car platforms, in other words platforms where (used) cars are transacted in a principal or agency model, but not ad classifieds. As such I distinguished depending on whom trades with whom between C2B, B2B, B2C, and C2C. We did not consider the classified platforms where a seller individual consumer transacts with a buyer individual consumer through the use of a classified site who brings both together but does not take any part in the transaction itself. We excluded this model from the study, as it is not relevant to compare classified sites with real transactional/trading sites.

A first finding is that the traditional model with incumbent operators originating in the B2B space is challlenged today by new models who source cars with consumer and/or who even sell cars to consumers.

The 2 most incumbent operators in the US are definitely ADESA (part of KAR Auction Services) and Cox Automotive.

ADESA was founded in 1989 and is headquartered in Carmel, Indiana, US. Its origins are a family business. ADESA is the largest component of the business but actually part of a larger business named KAR Auction Services. There are lots of value added services and other brands around the auction process in the portfolio of KAR Auction Services. KAR is publicly quoted on NYSE with the ticker “KAR” and executed its IPO in December 2009.

The company is the largest one in number of cars transacted with 3.1 million cars last year and is globally present in 75 countries, including overseas. In 2016 a greenfield operation was started in the UK and in 2018 the European mainland was covered with the unexpected acquisition of CarsOnTheWeb. Today the geographic units are ADESA US, ADESA UK and ADESA EU.

Cox Automotive is a clear number 2 in transacted cars with a volume of 2.3 million cars last year. The unit is one out of the three divisions of famous Cox Enterprises and is as such privately owned. Headquarter is located in Atlanta, Georgia, US and they have been for a short while active in Europe through the Manheim Auctions brand but withdrew from all European operations around in the aftermath af the credit crunch of 2008–2009.

The most interesting newcomer in this B2B game is ACV Auctions inc based in Buffalo, NY, who IPO’d as recently as this year in March 2021.The company is currently loss-making but the operational metrics of #cars/FTE and GPU (“Gross Profit per Unit”) are actually quite similar to that of the incumbents.

It is obvious that the expectations and valuations of some of the newcomers are “challenging”. Not to say “irrationally exuberant”. Some of us know what to do with this.

While the 3 companies above focus primarily on wholesale transactions (B2B) the next 4 companies focus on retail transactions (B2C).

Incumbent playere here is CarMax transactioning some 750,000 vehicles last year. CarMax was a spun-off and split as a stock dividend in 2002. Newcomers in the game are Carvana and Vroom who both IPO’d respectively in 2017 and 2020. Interesting to note is that a late startup named Beepi has raised in total some $150 million but went bankrupt in 2017.

Most recently a new startup in Latin-America named Kavak copied the Beepi business model. Kavak amazingly acquired this month a large Turkish player named Garaj Sepeti for allegedly some $40M. As such Kavak has crossed at very high speed the Atlantic ocean and has put its cash to work. Cash which they received from a.o. DST Global (Yuri Milner), SOFTBANK Latin America (Masayoshi Son) and Founders Fund (Peter Thiel).

More analysis is to follow in a next post which will cover European operators.

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Luc De Vos

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