Economist Tom Kontos Says Farewell to Wholesale Auctions

Tom Kontos, chief economist for the ADESA wholesale auto auction firm, helped invent the concept of nationwide, data-driven analysis of the wholesale used-car market and wholesale used-car prices. He retired from ADESA in mid-August after more than 30 years in the industry, starting in 1994 with ADT Automotive Inc.

Kontos (pictured, below) is best known today for his monthly, playfully named “Kontos Kommentary, a long-time must-read for anyone following used-car auction prices.

Besides the numbers, Kontos (see image at end of story) also relates how prices are affected by manufacturers, dealers, auto auctions, financial institutions, fleets, insurance companies and other stakeholders. For example, manufacturers’ new-car incentives on particular vehicles typically cause an immediate drop in used prices for those vehicles.  Kontos’ career spans from the early days of mass-market auto leasing to electric vehicles from mass-market brands and the coming impact of ride-sharing.

 WardsAuto spoke with Kontos about his career and viewpoints on automotive. Below is an edited transcript of that conversation.

WARDS: What recent trends did you see when you moved into the automotive field?

KONTOS: Leasing was really coming more into the mainstream. Leasing certainly existed earlier, but it existed mostly for folks who wanted to have a Lamborghini or something, something exotic or (luxurious) while conserving one’s capital. The Red Carpet Lease by Ford (first introduced in 1975) was sort of the launch pad for leasing to become a more meaningful, mainstream product.

WARDS: What about fleet sales?

KONTOS: Another thing I remember from those days was the program car. That has continued. To this day, there are some program-car sales where the manufacturer sells rental cars but with a guaranteed buyback price; if they were kept within a certain mileage, age and condition, they can have it repurchased at the guaranteed price.

WARDS: Auto auctions used to be a much more local affair, didn’t they?

KONTOS: When I was hired at ADT (Automotive as director, strategic planning and market analysis) it was as an outsider, with an outsider’s perspective. ADT had begun the process of consolidating auctions. There were others, but ADT got the ball rolling by making acquisitions. I would say that the consolidation of auctions made possible the program car and the off-lease cars. Had manufacturers not had an outlet for the repurchase and remarketing of off-lease and off-rental vehicles — some sort of national footprint and a national infrastructure — they would not have been able to do as they would eventually do.

WARDS: What are some of the red flags you watch out for that maybe aren’t an obvious part of the used-car industry?

KONTOS: One of the big ones is new-car incentives. They are looming. The shortage of used cars has been a bit of a tailwind to remarketers, and the shortage of new cars has shielded manufacturers from worrying about putting as much on the hood of new vehicles. But with the recovery in new-vehicle inventories, incentives are probably going to be more of a factor again.

WARDS: And interest rates?

KONTOS: Interest rates, too. Ultimately, it’s a pain whether you’re selling new or used. To the extent interest rates are limiting demand for used, that’s a fly in the ointment. The availability of financing to a broad range of customers, as things get limited, is another red flag I tend to watch out for.

WARDS: What about longer-lasting vehicles? Analysts always talk about the average age of cars on the road.

KONTOS: Longevity is a factor. Cars do pile up more mileage than they used to. But the longevity of the vehicle probably isn’t even the biggest factor. It’s how many new vehicles are being sold. I liken it to demographics. Where births don’t keep up with deaths, that’s how, statistically, a population age increases — on average. The biggest factor is how many births there are, not the fact that people are living a little longer. It’s like that in Vehicles in Operation (the total number of vehicles on the road).. New-car sales aren’t really keeping up with the aging of the U.S. fleet.

WARDS: What are some of the future trends you’ve been watching?

KONTOS: The trends toward ride-sharing and the like are allowing a car to be used more hours of the day, in which case the car racks up more miles per year than in times past. That plays itself into the fleet numbers. We may see more churn in the cars instead of less, even if they can last longer for a single user.

WARDS: Is that good or bad for the auction business?

KONTOS: That’s probably healthy for society to utilize the fleet more efficiently. Parking spaces, garages — all these things, all these resources — are expended, based on people having a car sit a lot. When you’ve seen a lot of these trends, and thought about it for a long time, you kind of have a sense for how it might develop.