Collision course: Competition heats up in Indy-area auto auction market | Crain's

Collision course: Competition heats up in Indy-area auto auction market

Cars roll down the lane of Indianapolis-based XLerate’s Charleston Auto Auction, located in South Carolina. XLerate bought three auctions this year and is looking for more. | Photo courtesy of XLerate

They’re 2.5 miles apart, along North Meridian Street.

To the north, in Carmel, is the headquarters of KAR Auction Services, whose ADESA unit is the nation’s second-largest wholesale auto auction chain.

To the south, at 10333 N. Meridian St., is relative newcomer XLerate Group, a wholesale auto auction led by former ADESA executive Cam Hitchcock.

They couldn’t be much farther apart in size, however, with ADESA’s 78 auctions compared to XLerate’s 17 auction sites.

That’s no roadblock for XLerate CEO Hitchcock, whose Indianapolis-based company has its eyes on acquiring independent auctions. XLerate completed its third acquisition of 2016 last week, picking up Lubbock, Texas-based Lone Star Auto Auction. The auction supplies car dealers with off-lease, fleet, repossessions and trade-in vehicles from other dealers and financial institutions.

“We’re trying to add quality independent auctions to broaden our geographic and product footprint, said Hitchcock, whose XLerate is part of Detroit-based Huron Capital Partners.

Hitchcock said the big guys like ADESA and volume leader Manheim do a “great job,” but can’t match the “higher level of service and flexibility” possible at independent auctions.

A general manager at an independent auction often knows customers by name, for example. “It’s a little bit more of a human touch,” Hitchcock said.

‘Stealth entrance’

Though nearly under the nose of giant ADESA, up the street, XLerate has largely flown under the radar in the metro area. It established a corporate office in Indianapolis with about a dozen employees in June of 2015, in what Hitchcock called a “stealth entrance.”

XLerate employs about 1,100 people around the country.

Hitchcock and Huron Capital bought the company – then the Charleston, S.C.-based American Auto Auction Group – in May 2014 from Baird Capital Partners.

Within months, they rebranded the company as XLerate, given that many auction and repossession firms carried similar monikers.

Hitchcock said putting the headquarters in Indianapolis made sense because it is a more central geographic location and because the city has a deep bench of auto auction industry talent.

Besides snapping up Lone Star, XLerate this year also bought Grand Rapids Auto Auction and El Paso Independent Auto Auction.

“We’re trying to add quality, independent auctions with established management teams to broaden our geographic footprint,” Hitchcock said.

Buy and build

While he declined to specify his intentions for acquisitions in 2017, Hitchcock said there are plenty of independent firms out there, and they’ve been calling XLerate.

Many times it’s simply due to generational changes in which the current owner wants to get out. Some auctions don’t have the funds or desire to adopt the latest technologies, such as mobile apps for remote bidding.

XLerate offers those services and a network of experts to help drive sales volume, Hitchcock said.

But in a nod to brand value and local goodwill, “we don’t and we haven’t rebadged any of them to date,” he said of the recently acquired auctions.

Many of the ownership turnovers in the industry are due to normal life cycles among independent auctions, said Frank Hackett, CEO of Frederick, Md.-based National Auto Auction Association. Technological changes have also brought new expenses, he said.

As for the auto auction business itself, the market is booming in parallel with rising new car sales and related leasing and financing activity.

The value of vehicles sold at NAAA-member auctions in 2015 climbed 11 percent to $90.6 billion, the highest growth rate since 1999. The number of units auctioned rose 6.5 percent to 9.3 million vehicles, according to NAAA.

Financing plans

XLerate plans to gradually add additional staff at its Indianapolis headquarters, Hitchcock said. And, “you should expect us to continue to expand our footprint.”

One thing missing, however, is a loan program to help dealers purchase vehicles. Big auctions have their own such offerings, such as ADESA’s Automotive Financing Corp. and Manheim’s NextGear Capital.

These financing divisions can be lucrative for auction chains. For example, ADESA’s AFC generated revenue of $218 million in the first nine months of this year, or nearly 10 percent of KAR’s $2.3 billion in revenue during the period, according to a recent KAR filing with the Securities and Exchange Commission.

Asked about a shift into financing, Hitchcock said, “Stay tuned.”

XLerate’s other holdings include Auctions in Motion in Thousand Oaks, Santa Ana and Pasadena, Calif.; Badger State Auto Auction in Fond du Lac, Wisc.; Charleston Auto Auction in South Carolina; Greater Kalamazoo Auto Auction in Michigan; and Your Auction in Tampa Bay.

XLerate also has multiple mobile sales units in Texas and Florida, which are two of the largest car markets in the U.S.

Huron Capital has been big supporters of XLerate’s “buy and build” model.

“We think XLerate’s strategy is attractive to operators who are looking to join a growing network of auto auctions in order to share best practices and benefit from our nationwide platform,” Huron Capital Vice President Greer Love said in a statement last week.

Hitchcock is also board chairman of Nashville, Tenn.-based Primeritus Financial Services, which provides repossession and remarketing-related services to automotive lenders.

December 8, 2016 - 12:08pm