KAR Auction Services and Automotive and Auto auctions and Transportation, Distribution & Logistics

Ex-execs return to Adesa

May 21, 2007

Less than two years after being driven out of Adesa Inc. as unceremoniously as a Buick down its auction lanes, James Hallett is back behind the wheel of the nation's No. 2 wholesale vehicle-auction company.

The gregarious ex-Canadian car dealer and auctioneer not only has been personally vindicated in ways most deposed executives can only dream of, but so, too, has his strategy been affirmed for how the now-privately-held Carmel company should be run.

Hallett vows to bring the entrepreneurial culture back to Adesa. He won't shy from acquisitions. And he wants to grow Adesa's market share of the $83 billion wholesale vehicle auction market at least 60 percent amid an industry ripe for consolidation.

"Private money tends to be a little more patient," he said. As a public company, "sometimes you pass up very good long-term investments because of [need for] short-term rewards."

The 53-year-old sports gun-slit-rectangular glasses like what a villainous German industrialist in a James Bond movie might wear. He wasn't a good fit for Adesa when it was publicly traded and chaired by ex-Minnesota utility executive David Gartzke.

"Corporate bureaucracy. Nightmare," Hallett said, reflecting on the days when the two of them co-existed at Adesa. Associates said he and Gartzke tried to avoid each other in the hallways as if the other were a biohazard.

Last month, KAR Holdings II--a group of private equity firms including Kelso & Co. and Parthenon Capital--bought Adesa for $3.7 billion and took it private. They made Hallett president and CEO of KAR's largest unit--the wholesale auction business. Gartzke and his team were sent packing, albeit with eye-popping severance packages.

That they put Hallett back in means "he probably has a mandate to grow the business," said Jerry Williams, a former executive vice president of Adesa who now practices law at Sommer Barnard in Indianapolis. "Adesa was very entrepreneurial. [It] took risks all the time," he added. "I think Jim will do a good job."

Was Adesa too conservative as a public company? "No, gosh no," said Garzke, noting it bought several auction firms and invested in technology, such as online bidding.

Fall from grace

Hallett once owned all or part of several new-car dealerships in Canada. He also ran three of his own wholesale auctions, in Halifax, Ottawa and Quebec. Adesa bought his auctions in the 1990s and he rose quickly through the ranks, first as head of Adesa's Canadian operations, then as president of the company's North American operations.

After he was cut from Gartzke's team in 2005, Hallett became president of Columbus Fair Auto Auction, in Columbus, Ohio. He speaks of the experience glowingly. Still, it was the minor leagues compared with Adesa, to which, he said, "I gave a large part of my life."

When word came he was returning to Adesa under new ownership, many couldn't help but wonder whether the spurned executive helped orchestrate the deal--perhaps something from the playbook of J.R. Ewing.

As for who approached whom, Hallett said he was sought out, last September. Look, he said, it makes sense. After all, he owned and operated his own auctions. He has connections to expand the company's presence in Canada. He knows the business and embraces a more entrepreneurial approach that fits the current ownership structure.

"I think I still have a vision for where Adesa can go," he said.

New team

Hallett wasted no time in bringing in his own team and in removing the contagion of the public company structure.

A few weeks ago, he brought back Warren Byrd, who is credited with helping Adesa grow over a decade from 14 vehicle auctions to more than 80. In recent years, Byrd was chief operating officer of California-based ServNet, an association of the 23 largest independent U.S. auto auctions.

Also brought back, to lead sales and marketing, was Jeff Bescher, who used to be Adesa's director of sales and national accounts.

Hallett also touts Bob Rauschenberg, the new executive vice president for sales and marketing. He's another Adesa alumnus and is former president of locally based Auction Broadcasting Co.

"If there's a better relationship guy in the industry, I haven't met him," Hallett said. "We really picked what we would say is the cream of the crop."

Hallett wasted no time booting loyalists to the Gartzke regime, starting the morning of April 23--his first day of work. It was nearly two years to the day Gartzke ousted him.

"Any of us who had anything to do with his departure, we were the first ones gone," said a former employee, who asked not to be identified, citing terms of a severance package. Targeted "was anybody in the Dave Gartzke camp."

Some of the employees caught wind of the ouster plans a few days earlier, coming in during the weekend to clean out desks to blunt the planned Monday "ambush."

In all, about 10 people were let go, a former employee estimated, though exact numbers are hard to come by from the private company. It was a tiny fraction of Adesa's total work force. The company has about 1,000 employees between its Carmel headquarters and Plainfield auto auction.

A former employee loyal to Gartzke expressed regret that years of bringing the regimented ways of a publicly traded company to Adesa are apparently now in vain.

"It's going back to the scratch-and-spit car guys. He's an industry insider, like it or not," the ex-employee said. On the other hand, "all the people who left town when the Gartzke gang came in are skipping and giggling down the halls, saying, 'We won.'"

More nimble

Hallett said job cuts were principally in areas associated with public company support, such as investor relations. He rejoices in not having the pressure of market expectations, the tyranny of an earnings release every three months, and endless filings with the U.S. Securities and Exchange Commission. One former associate said Hallett would rather cut off his arm than spend a weekend poring over financial statements.

"We can really get things done" now, "without committees, without bureaucracy," Hallett said. "You make decisions much quicker.You short-circuit the bureaucracy, if you will."

Have some ideas? Come on down to his office, or that of Brian Clingen, KAR's chairman, Hallett said of employee access.

Before buying Adesa, the equity funds already owned Insurance Auto Auctions Inc., a Chicago-area firm that's the nation's second-largest automotive-salvage auction. Adesa's salvage-auction business, Adesa Impact, is No. 3.

Adesa and IAAI will be able to share real estate and, in some cases, look at eliminating redundancies where they overlap in certain regions.

Hallett said IAAI also brings a valuable computer information system and talents of its crackerjack chief information officer, John Nordin.

Gartzke said Adesa will need costly investments in facilities, e-business and information technology. That spending would pay off, but "it would have put the stock in a trough" for a while.

He said there's merit in the new structure for Adesa. "They should do quite well."

Hallett is confident his handpicked management team can deliver the growth the new owners are counting on. Adesa has roughly 18 percent of the market, second to Atlanta-based Mannheim, a subsidiary of Cox Enterprises that holds about 50 percent of the vehicle auction industry share.

"I really believe Adesa has the opportunity to sell about 30 percent of the industry," Hallett said.

He anticipates doing that through a mix of internal growth and acquisitions. The company already is in the process of massive expansions in Dallas, Kansas City and Phoenix.

The rest of the industry tends to be made up of smaller, independent players.

"Many independents that remain are at kind of a crossroads," Hallett said. "I think we are their exit strategy."

The vehicle wholesale industry is virtually a commodities market for the used car. New- and used-car dealers and fleets need a way to dispose of off-lease vehicles and trade-ins--and a place to buy those cars cheap on the wholesale market.

Adesa's 54 used-vehicle auction sites transport and recondition cars and handle the paperwork. Its 85 Automotive Finance Corp. outlets finance dealer purchases at auction. Its 42 Adesa Impact sites auction salvaged cars--typically wrecks that have value for their disassembled parts.

Last year, Adesa's various operations posted sales of $1.1 billion, generating profit of $126 million.

Those operations employ 11,000 in North America, including more than 300 at the Carmel headquarters.

One lingering question is whether Adesa will keep its operations in Carmel or consolidate them at Insurance Auto Auctions offices, in Chicago.

Hallett said it's not an issue.

"Are we committed to Carmel for the long term? Yes," he said. "We love Carmel. We love Indianapolis." It was here that he obtained his U.S. citizenship, in 2003. "This is home ... I never wanted to leave."

With his return, "I'm doing exactly what I wanted to do with my life."

But the news isn't bad for Gartzke, either. His departure triggered change-in-control payments and other benefits topping $15 million.

Source: XMLAr00103.xml
ADVERTISEMENT

Recent Articles by Chris O'Malley

Comments powered by Disqus