The 2025 Wholesale Car Market Explained – Key Insights and What’s Ahead | Peter Kelly

I think wholesale volumes will still be somewhat constrained really because of that lack of one to three-year-old vehicle that I talked about, so we won't see a massive growth in wholesale supply this year, I don't think. But I think that also means prices will tend to support wholesale used vehicle prices. We are expecting fairly significant growth in used vehicle supply in '26 and '27, largely through increased numbers of off-lease vehicles, but that doesn't happen until very late this year or early next year.

Thank you. Delighted to be back here. Great to see you again and happy New Year.

Life is good. Life is good. Business is good. Excited to be here.

Thank you. I appreciate you looking back at that. I'd forgotten about those predictions, so I'm thankful for the talented team that told me all those things were going to happen.

For our company, a good year. 2024 was a good year. I feel really good about it. For the industry too, I think things have normalized coming off a few very interesting years. 2021, '22, I think things started to normalize in '23 and '24, but I do think conditions have gotten more normal but still good operating conditions for our customers, for dealers for the most part, for motor manufacturers, for retail consumers. So a good environment to be operating in. I think things are going to continue to get better, is my view. So I feel good about that.

Openlane, we're an innovative digital marketplace business, and we're focused on a core purpose: to make wholesale easy so our customers can be more successful. Our customers for the most part are dealers, franchise dealers, independent dealers. We also serve motor manufacturers, captive finance companies, rental car companies, fleet companies, etc. But numerically, the vast majority of our customers are dealers. And we're here to make all of our customers more successful by making the wholesale process easy. In the past 12 months, we've sold just over 1.4 million cars. That number continues to grow, and we do that entirely through a digital marketplace business model. Openlane is the brand in the US, Canada, and a smaller business in Europe also branded Openlane. In addition to that digital marketplace business, we also own a finance floor plan business which is targeted for independent dealers, and that's AFC. So many of your listeners would be AFC customers as well, I'm sure.

It has been four years, and with year's end it's a time for reflection and also looking forward. So I've been reflecting on some of those things. I guess if I were to distill it down, I've learned as a CEO the decisions you make are really important, but it's also important that you make decisions because you've got an organization that wants to move forward. They're looking for direction, they're looking for clarity. So it's really important as a CEO you make decisions. You often find yourself, and I think this goes for whether you're a CEO or not, always looking for more information. I'm a pretty analytical person, so I'm always seeking that next data point or that piece of input from somebody whose opinion I trust and respect to help me get to the right decision. But I've learned sometimes you're not going to have all of that in the way you'd wish, and you have to make the decision with the information you have. It's important to get comfortable with that because a decision is generally better than no decision. So I'd say that's one learning. Maybe another one, which might even be more important, is that a CEO of an organization, and Openlane has 4,500 employees, my real role is empowering those 4,500 employees. Those are the people who actually get the work done, that move the business forward, that take care of our customers. So empowering that team and making sure that team is aligned is really important. And we do that through clarity of purpose, being really clear about what this company is about. In our case, we're about making wholesale easy so our customers can be more successful, so dealers can be more successful. That's what we're all about. If we have that as our North Star, then I can trust that when a person is interacting with a customer or when you have a group of employees in a room trying to make a decision, if they keep that as a North Star, they'll probably get to the right answer more often than not. So clarity of purpose is important. And then culture. The culture of the organization, and I think about culture as how do we work together as a team here at Openlane, but also how do we work in partnership with our customers to move all of our businesses forward? Because that's ultimately what we're all about. Our success will be driven by our customer success. If we can help make our customers successful, that will ultimately drive success for us. So we've been very thoughtful about our culture. We have various core values that we talk about a lot. I talk about them at pretty much every team meeting. Things like relentless curiosity. We encourage our team to always ask questions: how can we make it better? What are the pain points we don't understand? How could we possibly improve those? Is there a process change or a technology solution that might help? So relentless curiosity. Smart risk-taking is a core value. We have to take risks, we just want to be smart about it. And then one I love personally is what we call fearless ownership. The idea that we honor our commitments. When we say we're going to do something, we follow through. That type of ownership is important in any organization and certainly important for us and for our customers to see us deliver on that.

When I look at the businesses that are the most successful, it seems to me the businesses that are the most successful really focus on the experience their customers have. They're focused on that customer experience and creating a great experience for customers. I think the bar just continues to get raised here across the board. We all have these experiences: we go to a restaurant, we have a good experience or a bad; we check into a hotel, it's good or bad. So we recognize what a great experience is, we recognize what a poor experience is, and we don't want those poor experiences. So we bring that expectation to everything we do. I would say whether you're a dealership or whatever business you're in, trying to create that great experience for your customer has to be a top priority. So I would encourage us all to think on that. And then I think leveraging the tools that are out there. When I think of dealers, and I've been in this industry now for 25 years, words that come to mind are things like entrepreneurship, entrepreneurial. I think dealers are incredibly entrepreneurial, and they're always trying new things and new ways of doing business. Through that, great solutions rise to the top. And resilient. Dealers have been through every sort of economic cycle, the good times and the bad, and they find a way to prosper and do well. So I think those are great attributes that they will continue to have.

We're trying to create a great experience for our customers. When we look at our most successful customers on our platform, and again think of our platform as a two-sided marketplace with sellers selling vehicles to buyers, I think our most successful customers are the customers that are in the platform leveraging all the tools that are available to them. To give you an example, our platform enables a seller to build followership. What that means is if I'm a seller and I'm putting vehicles into the marketplace and a buyer purchases from me, if they like that experience, they can follow the seller. Every time that seller puts another vehicle into the marketplace, that buyer gets a notification. That's a trigger for that buyer to get back in because they had a good experience with that customer. So I see our most successful sellers leveraging that, building a followership, really taking care of their brand within our marketplace. Because that builds greater conversion rates, greater price attainment, faster time to sale, all those types of things. Focused on high conversion rates. We find that buyers like to participate in auctions where a high percentage of the cars are going to sell. That's very normal and natural. So our most successful sellers are the sellers that engage to make sure they're getting high conversion rates early in the process, and that builds success. We obviously focus on building a tool set that enables that. Last year we launched something called Absolute Sale. Absolute Sale is a tool for sellers. It enables them, once they've gotten to a certain point where they say, 'I'm good with this price, this car is absolutely going to sell,' and they click that Absolute Sale button. That notifies all the buyers that this vehicle is now 100% certain to sell, and that generates a whole new round of price appreciation. We see another $600 to $700 of price appreciation from that point to when the vehicle ultimately sells. So these are kind of tool sets that we offer, and frankly other platforms offer similar tool sets I'm sure, but we offer a very robust set of tools that enable our customers to be successful. I think the customers that are most successful are taking full advantage of that tool set.

Yes, we do. In a sort of late mid '22 to probably end of '23, we saw about a 20% depreciation in the value of used vehicles over that period. That was unusual. That came on the back of a massive run-up in price in the 12 months prior to that, of course. But really since then, it's been more within the normal seasonal pattern. In fact, within the last three months, it's been quite strong. I felt Q4 volumes and Q4 prices were stronger than perhaps I'd expected. That's good for conversion because when the buyer and seller both have a shared understanding of what this vehicle is actually worth, we're more likely to convert a higher percentage of vehicles, as opposed to where the seller is anchored somewhere else from where the buyer is. So that's positive. I'm actually thinking we may see some appreciation in vehicles here in the early part of 2025.

Not necessarily more than the usual, but spring market usually we see some price appreciation. I would say we'd probably expect a normal amount or maybe slightly above normal. I'm not expert enough to really say with precision there. But there is still a deficit of one to three-year-old used cars because there were fewer of those vehicles produced in '21, '22, '23. So we still have a structural deficit of particularly that sort of younger used vehicle in the marketplace, and I think that's going to keep pricing pretty strong.

We're watching a lot of trends. We start with the macro: what's the macroeconomy doing? The US economy has been strong, probably the strongest big economy in the world today. But it's not working at the same level for everybody across the economy. We read all about that. We look at overall economic growth, employment, stuff like that. Those have been pretty strong. We look at the interest rate cuts, but they haven't seemed to flow through to the end consumer yet. The Fed has cut rates, but I don't think it showed up in people's mortgages or car payments to the full extent, and there's probably reasons for that. Retail sales are robust. We're looking at the equity gap in off-lease cars. We'd like to see more repo vehicles returning into the wholesale market. We'd like to see more off-lease vehicles returning into the wholesale market. Some of the things you talked about earlier: manufacturer incentives, inventory on dealers' lots, EV car pricing. These are all metrics we look at. If I was to dial it all down, I think it's a pretty good environment for our customers. There's probably a bit more of an affordability issue for the retail consumer than we'd like, and I think that's going to persist. But absent some big unforeseen geopolitical thing, or absent tariffs, which we've heard talk about and there would be some concern about the impacts of that, I hesitate to speculate too much. But I think absent those two things, it's a pretty good environment for the retail new and used vehicle market and for the wholesale used vehicle market as well.

If I were to make a projection, I'd say my prediction is retail new vehicle sales and retail used vehicle sales in 2025 should be pretty good. I think wholesale volumes will still be somewhat constrained really because of that lack of one to three-year-old vehicle that I talked about. So we won't see a massive growth in wholesale supply this year, I don't think. But I think that also means prices will tend to support wholesale used vehicle prices. We are expecting fairly significant growth in used vehicle supply in '26 and '27, largely through increased numbers of off-lease vehicles, but that doesn't happen until very late this year or early next year.

Again, I'd say focus on delivering a great customer experience. I would say take advantage of the tools and capabilities that are out there, and I'd put Openlane in the mix of that. I think technology is a force multiplier for all of us, and I think technology enables dealers to do things that they weren't able to do in the past. If I look at the types of things we're doing for dealers, we're offering their cars in a nationwide marketplace. We're selling cars very fast. Our average days to sell is about a day. We're getting great prices, high conversion rates. That's on the sell side. On the buy side, a dealer can log on, there's nationwide inventory, it's refreshed continuously, new vehicles every day, it's an easy purchase process. We're soliciting feedback from our dealers all the time as to how we can make our process better. So whether it's Openlane or other tools, there are tools out there that can enable and empower your business in a different way and a better way than ever before. You should always try to take advantage of those. That would be my advice.

I'm really excited by the feedback we're getting from customers. To give you an example, I talked about customer experience. We started measuring customer experience last year. We started tracking NPS scores, net promoter scores. Now in our app, every 30 to 40 transactions, a seller or buyer is going to get a little pop-up asking how we're doing. It's a pick a number out of 10, takes a couple of seconds to answer that survey, and the dealer can also enter a comment. First of all, it's great that we're tracking this number, but I'm just super encouraged by the positive feedback we're getting. The most common score we're getting by far is a 10. And then when customers put in constructive feedback, that's really helpful. Sometimes it's 'Hey, you're doing a great job, keep it up.' Sometimes it's something constructive like 'Hey, if you could do a better job on the title tracking, this would really make life better for me.' That's super valuable. I get this in my inbox every morning in a summarized email, all the feedback from yesterday. I find it very encouraging because I think what it tells me is we're on the right track and our customers see we're on the right track. If we just keep focused and keep investing in this solution, our customers really appreciate it. So that excites me, and I think it excites our team as well.

There's been a number. I think a lot of them are incremental improvements and changes. The condition report is critical. We're always going to be investing in the condition report. We have AI built in there in many ways, we'll be adding more in there, but that work is never going to be done. We're always going to be investing in condition reports. But if I say big things, I really think the brand change and the platform consolidation was absolutely the right thing to do. These digital platforms, there were different brands, they were more fragmented. We put them together in one brand with Openlane. So if you go to Openlane today, we have this great mix of commercial inventory, off-lease inventory that you can't find anywhere else, but also all these vehicles from dealers and rental car companies and others. Bringing that together into one easy-to-use digital interface or system was the right thing to do. We've gotten great feedback from that. We've seen the customer base increase. We're certainly seeing a lot more participation from franchise dealers than ever before. We're seeing a broader mix of inventory, which means the range of cars we're selling has increased, particularly at the higher value, lower mileage price points. So I'm excited about all that. If I was to look at one innovation last year that probably had the most impact, I'd say Absolute Sale. We launched that in March, and today it's accounting for 50% or more of our open sales transactions in the United States. That's gone from 0 to 50% in a year. I'd have to say that's a pretty high impact change. We didn't force that. That's our customers adopting it and saying this is the way I want to do it. So that's been a big one.

We're excited to be there. We're going to have a bigger presence at NADA than we've had I think ever. We're excited for the conference, looking forward to being down in New Orleans. New Orleans is The Big Easy, and our purpose is to make wholesale easy, so there's a nice resonance there. We're focused on going big at The Big Easy at NADA in a few weeks. We've got some great stuff to share with our customers. We're going to be launching what we call our One App. It's another step forward in our technology, and this is going to enable a single interface for our dealers both for the open sale, the sell and buy functionality of our open sale, but also the private label programs that we run from any of the motor manufacturers. That's going to be a step forward and make the process easier for a lot of our customers. Looking forward to having you at our booth as well.

We're looking forward to it. I will be there, and I look forward to seeing your team as well. We've got some great meetings set up. I'm looking forward to meeting many of our customers over the course of the few days in New Orleans. We've also, for the last 10 years, had the privilege of supporting the NADA Charity Auction, which raises funds for K9 Companions for Independence. It's a great nonprofit organization. It's been our privilege to participate in that for 10 years. We're going to be continuing with that this year. So we're looking forward to a great show in a couple of weeks. We'll put information in the show notes below as well if anyone wants to learn more, wants to stop by, wants to come say hello. Like I said, I will be there as well, and we'll post the times for that too.

I'm optimistic for the year ahead. I'm encouraged by the positive feedback we're getting from customers. The volume trends we're seeing are encouraging as well. So I'm looking to get the word out there and hopefully grow our customer base, grow our volumes. I'm excited for the long-term future too. We're in a great industry with great customers. It's a relationship business, and I'm thrilled with all the great relationships we have across this industry. I think whether it's 2025 or the years beyond, the future is bright, and I think Openlane is going to have a bigger and bigger part to play in that future. So I'm excited by that as well.

Thank you very much. Good talking to you.