Peter Kelly: Craig, it’s a good question. It’s hard for me to predict it with precision. But I do — I’d say a number of things are relevant as we think about that. One is where used car prices trending. It’s been interesting in the first few weeks of this year, they’ve continued to trend slightly downwards. So, I still think there is, for the most part, more downward pressure on used vehicle pricing than upward at the present time. Although I’m not expecting a significant decline over the course of 2024. And then the second point is where are the residual values on the leases — these contracts written. And when I think of that, you got to think — now we’re starting to lap leases that were written in early 2021, mid-2021. That’s a period where we saw a rapid run-up in new vehicle transaction prices.
So, that would tend to correlate with higher residual values on those contracts. So, I think the equity gap is being compressed from both directions, and I expect it to normalize in the not-too-distant future, but I hesitate to put a specific time on that.
Craig Kennison: If you were to look at the cohort of leases made in late 2022 when used car prices really peaked, is it fair to look at those that cohort in particular and say, those look to be candidates for having significant negative equity?
Peter Kelly: Craig, I can’t really sort of shed more light on that than I’ve already shed in my answer. I think — I guess there’s one possible complication, Craig, that if there’s fewer off-lease vehicles at the top of the funnel, there could be increased demand and the prices in those vehicles could — that could sort of lift the prices on those vehicles and that could cause that equity gap to not narrow as steeply as one might like. So, there’s just a lot of moving pieces here, Craig. And I think here’s what I would say. We’ve seen the equity gap come down a lot. We’re seeing more vehicles enter the remarketing funnel. And based on my conversation with our commercial customers, they expect those trends to continue and that percentage of vehicles entering remarketing to go up. And that has the potential to offset the top of the — that we are aware of.
Craig Kennison: Yes, thank you very much Peter. And then maybe if I could. On the dealer side, I believe it was down just a little bit versus last year. I’m wondering if you’re still adding dealers. And if so, are you seeing fewer transactions per dealer for any reason?
Peter Kelly: Yes, we’ve seen — as Brad mentioned, we saw some headwinds in the second half of last year on dealer volumes in Canada. In the very strong market of the prior year, there was a lot of export volume from Canada into the US and that drove strong demand in Canada and drove liquidity in the dealer segment. So, that kind of went away, I’d say, largely in the second half of last year. That was a little bit of a headwind. Well, we continue to add customers. Our customer base on D2D continues to grow. Our US D2D volumes grew in the fourth quarter. And I’m again, as I mentioned in my remarks, very pleased with the very positive feedback that I’ve gotten from dealers who are active customers and using our dealer-to-dealer solutions, both on the sell and the buy side. So, I feel very encouraged about our offering and I think it’s very competitive vis-à-vis all other offerings that are out there and very sticky with its customer base as well.
Brad Lakhia: Yes. Peter, let me just — I would just add, Craig, on the Canadian point, what we’re seeing in Canada is not unique to us. The data the market intelligence that we have suggest that’s more broad-based. So I just want to make it clear that it’s not unique to our business there.
Craig Kennison: Great. Hey thank you.
Brad Lakhia: Thanks Craig.
Operator: The next question from John Murphy with Bank of America Merrill Lynch.
John Murphy: Hey, good evening guys. Just first question, Peter, you guys talked about the dealer-to-dealer business in the US being up a lot, but I mean total was down. So, I’m just curious how much dealer business was up in the US? And then also, conversely on the commercial side, where the strength is really coming from? I know we’re talking about off lease, but there’s rental government and commercial, commercial on the fleet side of the business. Was there any kind of particular strength there where these companies are finally getting back into auction lanes and selling as opposed to being buyers?
Peter Kelly: Yes. So, — thanks, John. So, on the dealer side, I said dealer volumes were up in the US, I didn’t say up a lot. I just want to be clear, but they were up in Q4. And I believe based on our analysis, we gained share in the dealer segment in Q4 as well when we compare our dealer volumes versus what we saw in other data sources. In terms of commercial, we’re seeing growth in commercial in both the US and Canada. So, I think it’s fairly broad-based. I just spoke about off-lease vehicles. We’re seeing increased consignment, more vehicles entering the funnel, flowing deeper in the funnel. So, that’s a positive for us. It was a positive in Q4, and we think that’s the beginning of a trend. In the industry, there’s also been an increase in repossession volume, John.
Most of those repos are sold at physical auction. I want to be clear on that. So, we don’t sell a lot of repos in our digital model yet, although we are piloting with some customers and having some success in that segment as well, but the volumes there for us are still quite small. But repo volumes are up, off-lease volumes are up, and we do sell rental cars as well for some of the major rental brands that you’re aware of and those volumes have been quite strong for us as well.
