Software September 8, 2020

Making Wholesale Easy: KAR Global to acquire BacklotCars

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Today we announce that BacklotCars has signed a definitive agreement to be acquired by KAR Global (NYSE: KAR) for $425M in cash. It’s a bittersweet moment as we exit the BacklotCars journey with plenty left to come, but we couldn’t be more excited for Justin, Josh, Ryan, Fabricio, and the entire BacklotCars family. Although we were only partners for 18 months, we watched the business grow dramatically as the team expanded from just a handful of midwestern states to nationwide coverage in less than a year. We wanted to mark the beginning of an exciting new chapter for company by taking a few moments to share our observations on what makes BacklotCars special.

Wholesale Used Car Market

Each year in the US dealers purchase 21 million wholesale used vehicles, 14 million of which are sourced from other dealers. Today, most of these transactions occur offline at one of hundreds of physical auction sites around the country. As a result, selling and acquiring wholesale vehicle inventory is an extremely time-consuming, inefficient, and manual process. In addition, inventory is often constrained locally and governed by the distance a buyer or seller is willing to travel to the local auction site. This was what initially excited us about BacklotCars, a digital marketplace that incorporates inspection, transport, and financing to bring the entire wholesale vehicle trade experience online with a best-in-class product platform, achieving significant efficiencies for both buyers and sellers in the process.

BacklotCar's Unique Approach

BacklotCar's unique model, operates with a few core principles to establish the trust and liquidity needed to bring a massive offline industry into the digital age.

Marketplace model: The BacklotCars team understood early on that better price discovery was needed to enable a fully digital dealer-to-dealer transaction. The team therefore opted for an “always on” 24/7 marketplace vs. the traditional 10 or 20 minute auction model of the physical incumbents. Ultimately this marketplace model results in high dealer engagement and industry-leading conversion rates.

Full Transparency: The team also understood that complete transparency was needed to enable a fully digital dealer-to-dealer transaction. They purposefully display complete seller and buyer details on the marketplace to naturally incentivize ‘good behavior’ and create counter-party trust. In addition, the platform allows buyers and sellers to easily message one another to further enable confidence and trust in the transaction.

Independent inspections: A network of independent, experienced mechanics inspect all vehicles using a BacklotCars-built software platform, and the results are backed by a BacklotCars guarantee so that buyers can bid their full willingness to pay with confidence. These fully independent inspections delivered at scale are key to building trust around vehicle condition and played a critical role in BacklotCar's success.

Delivering a seamless end-to-end experience is critical: BacklotCars combines its core marketplace with highly relevant value-added services to drive liquidity, stickiness, and unit economics:

  • Transportation: Because the vast majority of transactions on the platform involve buyers and sellers in different markets, reasonably priced, low-friction transport service is critical to drive a unified national marketplace with strong liquidity.
  • Inventory Financing: Most buyers use some form of financing to purchase vehicle inventory for their lots. Providing a first-party option helps drive buyer conversion, satisfaction, and loyalty, all of which translates to substantially better unit economics.

Automate everything: Stripes has invested in many category-defining marketplaces over the years including Upwork, Seamless/Grubhub, and Udemy. In each of these businesses, integrated software played an important role in facilitating and strengthening the marketplace — BacklotCars followed a similar path. BacklotCars built software to automate many back-end processes, including title management, seller payments, customer support, and facilitation of transportation and financing. These efforts drive significant cost savings that give the team more capital to reinvest into the quality of the user experience and growth of the platform.

KAR Global (NYSE: KAR) to acquire BacklotCars

BacklotCar's planned acquisition by KAR is a testament to the high-quality company their entire team has worked hard to build over the past few years. BacklotCar's cofounders, Justin, Josh, Fabricio, and Ryan are truly exceptional operators and this outcome would not have been possible without their unique blend of deep industry knowledge, humility, understanding of the problem set from all sides, and intense drive to solve these problems to create the best possible digital wholesale experience for all stakeholders.

Though we have only been partners since early 2019, we are proud and honored to have been one small piece of the BacklotCars story. We wish the entire team the best as they embark on this next chapter in their mission of making wholesale easy for dealers across the country in the years to come. Let’s go!

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