Market Minute: Weekend Spotlight on Openlane (KAR) CEO on Used Auto Industry & AI Adoption

Openlane, founded in 2006, is an online used car auction website. They sell wholesale and B2B exclusively, both in the U.S. and internationally. CEO Peter Kelly joined Morning Trade Live to discuss the business and the vehicular economy. Kelly calls the used car business “pretty resilient through cycles”, and the auto business as a whole very important to the economy.

The stock is up 14% over the last year, though down 2.5% year-to-date – it actually just gapped down yesterday on a JPMorgan downgrade to Neutral from Overweight. The analyst also cut their price target to $23 from $20, citing the “unequivocally negative” 25% auto tariffs. The analyst writes that 50% of vehicles sold in the U.S. are imported and thus expects a 9%-12% price increase for consumers.

Kelly referenced a “tough” macro environment from 2021-2023, during the worst of Covid, but says volumes and profitability are growing again. In 2024, it reported that it sold $27 billion in gross merchandise value, with 200K or higher average listings each month. Selling only to dealers, Openlane doesn’t have to worry as much about price pass-throughs, but tariffs could still pressure supply.

“In the current year, there is somewhat a scarcity of supply,” he adds, noting that off-lease volumes, a big part of their business, are expected to be low. The “deficit” of new car production during and after Covid squeeze that side of the business, but in the coming years, he expects the trend to reverse. On another note, Kelly says that the overall average age of vehicles is rising, giving Openlane more opportunities.

In its last quarter, reported in February, Openlane posted better-than-expected results for revenue with $455 million and was in-line on EPS estimates with $0.21 adjusted. While its 2025 outlook seemed to please the Street, another potential headwind, reported in Auto News, is that Amazon (AMZN) is looking to take a bite out of the used car industry.

One of Kelly’s highlights was their customer lock-in: “it’s a repeat purchase, [buyers and sellers are] in our marketplace every day.” A “competitive auction” process takes care of setting prices.

Of course, every digital business is being asked what they’re doing with AI. Kelly says Openlane is using AI for “damage recognition” in photos and can also target inventory at customers based on their past buying data. “I see it as an enhancement,” Kelly says, emphasizing Openlane as an “innovator.”

The auto market seems assailed on all sides, from parts shortages to new competitors to tariffs. With the consumer pinched already, new autos with 25% tariffs are probably less appealing to the majority of Americans, once again bringing the used market into focus. We saw used car prices soar during the pandemic, and might again now, since tariffs could impede the still-lingering Covid recovery. Car parts for used autos will also be more expensive, putting pressure on every link in the chain. As a marketplace, will Openlane see less volume, cutting into its revenue? Or will higher prices per car ultimately benefit the company, with its technological investments paying off down the road?