Justin Davis of BacklotCars on Online Wholesale and Used Cars

May 18, 2021| Zach Klempf

ZACH: Hello, Zach here, and we have an awesome guest on the podcast today, Justin Davis, who is an entrepreneur and the Founder/CEO of BacklotCars founded in 2015 which was acquired last year by KAR Global which is a publicly-traded company. 

Justin, thanks so much for joining me on the podcast! 

JUSTIN: Yeah, happy to be here. Good to finally meet you.

ZACH: So let’s get started and for those of us listening talk about how you got into the car business and the experiences that led you to found BacklotCars? 

JUSTIN: I grew up in and around the car business. My father owned a number of franchise dealerships in the Atlanta area. So I was the little kid on the car lot hustling the sales guy for candy money. Then in the early 2000s, he sold all of those points and went back to his roots of wholesaling cars. So then I was exposed at a very early age to the auction lanes and so I was then the fat kid at the auction eating all the donuts. When I graduated from university in 2008, I got on with an auction. I spent about 5 years, right out of school, just learning total auction operators. From top to bottom, just really understanding how the auto auction industry worked. From there, I sort of thought that there could be another way to do business, maybe a little bit different that involves some technology. So I jumped off and started BacklotCars back in 2014 to sort of create a better way to wholesale.

ZACH: How impactful was coming out to the Bay area and participating in the 500 startups program for your company's growth? How did that change things?

JUSTIN: That was a real inflection point in our business. We started BacklotCars in 2014, headquartered here in Kansas City. Kansas City is not really known as this big tech hub and so back when we were starting BacklotCars it was actually really difficult to get connected with other entrepreneurs who were looking to make a big splash in the big industry. So at the end of the year, I knew I needed extra help. I had this really deep industry knowledge, me and my co-founder Josh, knew the industry back and forth but what we have never done is started a tech company. What any entrepreneur would do, is sort of reach out and seek help and so we applied for 500 startups. Which is an early-stage investor and an accelerator in the Bay area and we applied. It was like a hail mary because things weren’t really easy to start out and we ended up getting in. As we moved out, we took that opportunity to really listen and learn from the people who’ve been there and done that before. It was huge, we learned number 1, how to pitch the business, how-to story tell, how to talk to investors. We learned more about products and creating software that people really really love. So I think it was sort of the first pivotal moment for us to have a really great company because you know ideas are really easy to come up with but then it’s all about the execution and continuing to listen and execute against that sort of mission and vision. I think it was really instrumental in our growth. 

ZACH: Were there any pivots or big changes from the idea that you started with into what Backlot developed into? 

JUSTIN: Our first business was actually a subscription-based marketplace. So we just said, “Hey let’s provide a platform for dealers to sort of connect and transact directly. We’re not gonna charge the transaction fee. We would do a subscription model? And so they would have access to this platform.” When we quickly found out that maybe that’s not what the market wanted. We then pivoted our monetization strategy and created some extra layers to make the transaction more seamless. We knew that maybe the dealers needed more trust and transparency on the platform. What we did was we said, “Hey let’s just inspect every car.” It can’t just be a visual inspection, by our name BacklotCars, we’re dealing with lower inventory. Your sub $7000 inventory, most of the cars value actually is in the engine, so we said, “Well what if we did a mechanical inspection on the vehicle to provide even more transparency.” So we sort of bolted that on. We then sort of realized that if guys are gonna buy these cars, if they’re gonna buy outside of just a small local region like Kansas City to Kansas City well we need to help on the logistics right? You know getting the car from point A to point B. So then we bolted on our logistics platform transport. Then we sort of started realizing, dealers the 2 biggest problems they have is access to inventory and access to capital and the right inventory. So we said well what if we could provide capital for them to buy more BacklotCars. We came up with our own inventory finance platform called Float to sort of fuel more purchases through the platform. So it was a very, maybe not a hard pivot but it was an evolution of the platform as we started to understand what the needs were of our customers. It’s very different from just the subscription marketplace we started to a very heavy transactional marketplace and we’re really driven by all of the services provided to sort of support our mission of making wholesale easy, so our dealers can be more successful.  

ZACH: How does Backlot’s platform differentiate from other online wholesale competitors?

JUSTIN: When we started BacklotCars, we knew we had to sort of think about it from a different angle. There were a lot of people creating that next best version of an auto auction. We knew, “Hey how could we think about this differently, from what other angle could we sort of study and attack the market.” And one thing that had never really taken place was creating this marketplace fuel for 24/7 marketplace where dealers could come and with a high degree of success, come and transact on their own terms. They want time back from logging on at this specific time or this specific window at random times throughout the day. They could just come and consume, just like they would on any other marketplace but again the key was to deliver as much success as what they would experience in the real world. So we attacked it from that angle. We created a bid as a Marketplace where dealers could come 24/7 and transact. The other angle that we attacked is, we knew the inspection was a core unlock and it wasn’t just again the visual inspection, it was soup to nuts what was going on mechanically with this car. Again, going that extra step and having mechanically inclined inspectors go out and touch and feel the vehicles, not just a salesperson, you wanted to differentiate from a couple different angles. I also think another angle was we built our logistics platform from the ground up with the marketplace and so making it sort of a seamless transaction was extremely important. Everything’s integrated into the platform to where it was just as if you were on Amazon.com, going and clicking and buying, we knew we had to make it easy. So we attacked it from that angle vs just looking at what existed in the market and then creating the next best version of that. 

ZACH: 2020 was a roller coaster of a year for dealers, talk to me about what you observed from your lens at BacklotCars and the way dealers shifted to wholesale 100% online?

JUSTIN: 2020, it was a scary year for every entrepreneur and that’s what a small used car dealer is. We’re all entrepreneurs and I remember that almost a year ago, standing in front of my team, I said “Hey whatever happens out there, doesn’t really matter but the one thing that does matter for BacklotCars is this mission..” our mission statement for our dealers is to make wholesale easy so dealers can be more successful. “No matter what else happens, know our dealers need help right now. They need help more than ever. They’re needing to provide, there’s so much risk and so lead with our mission and support our dealers. Do what’s right by our dealers and provide them with solutions to sort of transact online.” We did just that. We stayed focused on our dealers, we’re very proactive, we weren’t looking to sort of jam cars down and sell cars. We’re just actually looking to be helpful and by doing that, people as things were starting to open back up, as they were looking to transact, looked to BacklotCars because we were there, sort of in that time of need to be able to help them. I will say look, dealers have been using BacklotCars for the past 5 years. Was COVID an accelerant? Definitely. Did this give them an opportunity to buy other cars out of the state? Definitely. But it was the same value -- they’ve continued to see but what ended up happening is, everyone else sort of had to stop doing business in person and so that allowed all online businesses to flourish and grow even faster during the pandemic. 

ZACH: Post 2021, do you see in-person versus online wholesale coming back for dealers? What are your thoughts on the in-person component? 

JUSTIN: I think that was a big driver for our deal with KAR Global. Adesa is a great marketplace brand and similar to BacklotCars, Adesa during the pandemic made a very hard pivot and made a strategic decision to operate a 100% online but of course, there is still an offline component because the vehicles live offline, the inspections live offline, the transportations lives offlines. We felt the winning formula was an offline-online component ‘cause so much of this business is offline and if the dealer wants to go and touch and feel the vehicles if those vehicles are housed at an Adesa auction, then they should be able to do it but the reach that you get by operating the marketplace or the auction a 100% online, is so much greater. You have all of the data that’s inflowing, you have all of this more synergy on the marketplace and the flexibility that all the dealers want. I believe this combination between online-offline is actually the winning formula on a go-forward basis and again, what we need to continue doing to invest our dollars in, to continue to win. 

ZACH: What advice do you have for independent dealers when it comes to getting started working with an online wholesale company like Backlot? How do they get started? What are some considerations?

JUSTIN: I think, number 1 go to BacklotCars.com and request an invite. I think the other thing to keep in mind too, since we just didn’t create the next version of what was existing in the space, take the opportunity to learn the platform and work with the sales team member at the given platform. At BacklotCars we actually take this very seriously. We ask our new dealers to schedule a time so we can onboard and we have an account manager that’s with them to sort of teach them the ways to be most successful because again, we know investing in this relationship early on, we’ll help them be more successful. So I think that’s extremely important. Going in and understanding how to be more successful on that platform, seek to understand and again we’ve set up our platform to enable dealers to be the most successful. 

ZACH: Two auto trends have taken mindshare last year and wanted to get your thoughts on them: online dealers like Carvana and Vroom who have gone public and subscription services for automotive. What are your thoughts on these two trends? 

JUSTIN: I think they’re awesome. I mean, I think giving people flexibility and convenience, that’s what consumers, humans want. That’s why we created BacklotCars. Why be only transacting at one single place every single week. We should be having the flexibility to do business when we want and how we want. I think any of these businesses that make car buying more flexible or more convenient, for all parties actually is a win. I think I’m interested to see how these platforms evolve and how people are continuing to help the dealers be more successful in giving them tools to be more successful. And that’s a big philosophy at BacklotCars, as more pressure comes on the dealer from the retail end, how do we help them be more successful to make more for their bottom line because again, we’re all entrepreneurs. We’re all in this together and I’m really geared to helping the dealers be as successful as possible. 

ZACH: What are KAR Global’s predictions for 2021 and what’s coming down the pipeline? 

JUSTIN: I think more digital. I mean, I think actions speak louder than words. The fact that KAR has made huge investments in digital, speaks volumes. I think Adesa and BacklotCars, these are the leading marketplace brands we’re gonna continue to invest in and provide great platforms for all of our customers to be successful. We see what the market’s saying, and we see what customers are saying and we’re delivering great products and great service to create that end to end solution to help people be more successful, help our customers be more successful. 

ZACH: What has BacklotCars’ integration into KAR Global been like from a process standpoint? 

JUSTIN: It’s been awesome. As we were acquired by KAR Global I think the transition and the migration, we took about 30 days and got everything really done in about a 2-week time frame and from all of our dealers, really positive feedback from all the changes and I think we’re still really early days tapping into the fullest potential. KAR Global has so many great iconic brands that serve this space, and so we’re just the newest logo on the board and just finding ways to continue to work with the other companies that serve the dealer community, is gonna be huge. It’s been really great so far, excited for the future and what things we can continue to do to just help our customers be more successful. 

ZACH: Lastly, what is BacklotCars doing that uniquely helps independent dealers? 

JUSTIN: Any dealer can log on to BacklotCars and access fresh trades from new car stores that are mechanically inspected anywhere in the United States. So I’m in Kansas City, I can look at the lower 48 and buy cars with a click of a button. That access to do the prime inventory is what we provide and we stand behind what we say we’re delivering. Many other companies don’t do that. That access and returning that time back to the dealer, buying cars on the wholesale market is just one part of their job as an independent dealer that wears multiple hats, I have to do everything or nearly everything at a dealership. So if we can make them really great at acquiring the right inventory, then it’s great. It’s a huge win that allows them to sort of invest time back into their dealership or even their family, things that are maybe even more important than just the business. 

ZACH: Lastly, I loved that analogy you had earlier where an independent dealer is like an entrepreneur and they’ve just gone through 2020, one of the worst pandemics ever. What advice do you have for them as they start to kick off 2021, get into the summer months, you have the inventory crisis. What’s your advice for them?

JUSTIN: I think remember the learnings of COVID. That’s what I had told my team, we’ve come out of an extremely difficult time, we’re still in an extremely difficult time. And all of these learnings as an entrepreneur, don’t change because things are opening back up, stay disciplined, continue to stay focused. So the things that these dealers did to survive and advance and continue to grow in the middle of a pandemic, continue to have that same philosophy and same curiosity. If there’s a new technology that can help you be even better, take it. Take an opportunity to try it out. What’s the worst thing that’s going to happen? You’re gonna learn and your business is gonna continue to be better. That same philosophy just continues to keep an eye on what’s happening today and in the future.

ZACH: Well said Justin and it’s been a pleasure having you today on the Used Car Dealer Podcast. Thank you so much for joining us.

JUSTIN: Thanks, Zach.

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