Carvana’s purchase of ADESA could shake up used-car market

The deal could shake up the wholesale auction market long dominated by ADESA and Cox Automotive’s Manheim, and cause defections to the latter — to the extent sellers want to move away from a Carvana adoption model, Imbro said.

In the past, Carvana has partnered with Manheim on third-party reconditioning. It’s too early to tell how that partnership will be handled in light of the deal, Imbro said.

Manheim did not directly comment on the Carvana-ADESA U.S. deal but issued a statement that said, in part, that the company “has serviced the best interests of all our industry constituents for many decades and will continue to loyally do so.”

There’s certainly a chance the deal changes the wholesale backdrop across the country, Imbro said.

“Carvana owning the business strategically makes sense and provides Carvana with meaningful reconditioning capacity, as well as pretty valuable real estate in a lot of metro areas,” he said.

The planned ADESA purchase would mean 78 percent of the U.S. population would be within 100 miles of a Carvana-owned site compared with 32 percent before the deal, the company said. That could drive conversion on Carvana’s platform, Truist Securities analysts wrote.

Some don’t expect the acquisition to significantly impact the dealer-to-dealer wholesale business. If anything, companies focused on asset-light services and a physical-to-digital shift may benefit from the deal, CarGurus CEO Jason Trevisan said during an earnings call with analysts and investors last week.

“I think as a front-line retailer of cars, as a dealer, Carvana owning a wholesale platform … could create some channel conflict if they also own the auction piece of the value chain because they may have conflicting interests as both a wholesale buyer as well as a retailer,” Trevisan said. “But that’s not for us to decide.”

Analysts from Stephens predicted the deal will be well received for KAR Global, though they said it’s a little surprising given how much emphasis the company placed on the value of having both physical and digital offerings.

“They got a great selling price for the asset,” Imbro said. “It’s going to allow them to significantly pay down debt, which has been an investor focal point for a while here, and it streamlines them into a more digital business.”