• December 9, 2023

Carvana rivals rethink ADESA | Automotive News

“The four ADESA auction sites we used were moved to Manheim,” spokesman Vincent Bray, who said Toyota Financial routinely evaluates its auction footprint, wrote in an email. “Prior to the change, we informed our Toyota, Lexus and Mazda dealer partners of the transition.”

Volkswagen had not reached a final decision on ADESA, a company spokesman told Automotive News. GM Financial was assessing its physical auction options to decide on its next steps, a spokeswoman said in an email, without saying whether the company had stopped or would stop using ADESA.

Garcia said Carvana has seen less movement away from ADESA than it was anticipating. It hasn’t reached a level concerning to Carvana, he said, and the company remains excited about the acquisition, which it expects to close in May.

“We don’t think that that’s actually flowing through and impacting the results in a way that is noticeable as of yet,” Garcia told analysts and investors during Carvana’s first-quarter earnings call last week.

A spokeswoman for ADESA parent KAR Global declined to discuss any automakers’ departures. A Manheim spokeswoman would not comment on whether that company had seen an influx of customers as a result, citing a policy of not discussing client relationships or speculating about competitors.

The majority of Hyundai’s auction activity already goes through Manheim and a few of the bigger independent houses, a Hyundai spokesman said.

“Overall, it is too early to tell how dealer attendance and participation will change at ADESA locations due to the Carvana purchase,” Michael Stewart, Hyundai Motor America’s senior group manager of product public relations, said in an email.

Michael Baker, a senior retail analyst with D.A. Davidson Cos., said he expects that some dealers who prefer to use physical auctions will seek alternatives to Carvana-owned sites.

“In the past, ADESA was a service that they used,” Baker said. “Now, ADESA is owned by their competitor.”

The deal would give Carvana ownership of 56 ADESA sites across the U.S., totaling about 6.5 million square feet of buildings on more than 4,000 acres.

Carvana, which has 17 reconditioning and inspection centers nationwide, has said it wants ADESA’s real estate in order to boost its capacity and put the company within reach of more consumers.

Adding the ADESA sites would nearly double the volume of vehicles Carvana can process to as many as 2 million vehicles a year, the company said. It expects to have annualized capacity of about 1.4 million vehicles by the end of 2022.

Carvana, which last week reported a first-quarter net loss of $506 million, said it expects to mostly finance the ADESA purchase through about $2.2 billion in unsecured notes.

The company also revealed plans to raise $1 billion in preferred stock and $1 billion in common stock. Carvana CFO Mark Jenkins told analysts and investors the additional $2 billion would be used to fund improvements to the ADESA sites and for “general corporate purposes.”

Automakers and dealers leaving ADESA likely would be a setback for Carvana, but some analysts said the reconditioning capabilities it’s gaining might outweigh those losses.

Getting Carvana closer to more would-be customers could reduce delivery costs per vehicle, Stephens Inc. analyst Daniel Imbro said.

“Once they make their investments, that is the real benefit, I think, of why they looked at this asset,” Imbro told Automotive News.

Acquiring ADESA ultimately could aid Carvana in the long run as it hopes — but there’s a long way to get to that point, said Baker, the D.A. Davidson analyst. Converting the 56 ADESA sites into reconditioning centers will take time and effort, he said.

“There’s a lot of reconditioning, if you will, that they need to do … to get them ready, to get them to where they need them to be,” Baker said.

Still, he said, purchasing and improving the ADESA sites may be faster than Carvana continuing to build all of its own reconditioning centers from the ground up.

Larry P. Vellequette and Carly Schaffner contributed to this report.