the path forward safety in the open...

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Jim HallettChief Executive Officer and Chairman of the Board of Directors

KAR Auction Services, Inc.

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Safety in the Open Lane / The Path Forward / Jim Hallett

Thank you for the opportunity to be here today.

It is really an honor to be with so many auction leaders to discuss a topic that is incredibly important and meaningful to me – and to our industry.

Safety has always been a priority, but I believe we’ve reached a defining moment where the decisions we make and the actions we take will determine our future and perhaps our very existence.

So I appreciate you being a part of this dialogue.

I’d like to begin with a story about when I opened my first auto auction in Ottawa, Canada back in 1990.

I had been working for a franchise dealer, and opening my own auction was something I had prepared for and dreamed about for many years.

In addition to the feelings of hope and excitement – and some first day nerves – opening my own auction instilled in me an incredible sense of responsibility.

I was a business owner. People were depending on me.

I had employees who were depending on their paychecks to make a decent living and support their families and loved ones.

I had customers who depended on me to provide a fair, honest and profitable marketplace to buy and sell automobiles.

And even though no one requested it, I knew people were depending on me to provide a safe work environment.

I took these responsibilities very personally – because they represented the values that had been instilled in me by working in the industry, building strong relationships and learning from my mentors.

INTRODUCTION

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A few years later, an accident at my auction in Ottawa nearly killed my closest childhood friend.

An SUV accelerated suddenly, got out of the lanes and injured several people – including my friend.

I was in Indianapolis at the time, and I immediately flew to Ottawa where I found my friend unconscious in a hospital bed.

The event was devastating to me as a business owner, a friend and as a human being.

At that moment, I began questioning – what could I have done differently? How could I have prevented this?

I had been in the industry for many years, and I was well aware of the potential dangers.

But I didn’t think something like that would happen at my auction – not on my watch.

My experience at the Ottawa Auto Dealer Exchange taught me a lot of things – and it set me on the path to becoming CEO of KAR Auction Services and the approximately 250 auctions we operate today.

I am forever thankful that my friend survived – and though the accident stays with me every day, the memory fuels my commitment, my passion – and my obsession with safety.

INTRODUCTION

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Each year, almost three million US workers suffer a serious job-related injury – and approximately 4,500 of those result in fatalities.

Unintentional injuries are still the fourth largest killer in America, led only by medical conditions like heart disease and cancer.

Now, auto auctions are not the largest contributors to these troubling statistics – in fact, we’re not even in the top ten.

But according to the Bureau of Labor and Statistics, 4 out of every 100 wholesale vehicle industry employees are injured each year – an injury rate on par with steel foundries and hazardous waste collection services.

Even minor accidents can negatively impact the lives and health of those injured – and they can lead to serious financial and operational consequences.

Fines and penalties from regulatory agencies – like OSHA – now exceed $12,000 per violation and can reach up to $126,000 for repeated violations.

There are also medical costs and disability costs – and the significant cost of lost work productivity.

According to the Centers for Disease Control, workplace injuries and illness cost US employers about $225 billion each year and approximately half of that is due to lost work productivity.

None of these financial costs consider the intangibles – like damage to reputation, relationships and employee morale.

And ultimately, whatever impact we feel pales in comparison to the human impact – the lost income, pain and emotional stress incurred by those injured and their families and loved ones.

STATISTICALBACKGROUND

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Safety events are something that I – and many here today – have witnessed far too many times over our careers.

And when accidents occur, they affect the entire industry.

Safety isn’t a big auction issue or small auction issue. It’s not about blame and it should never be about competition.

Safety is an industry responsibility – pure and simple.

Safety is the most basic obligation we owe to our employees and our customers – it is simply the price of admission.

And we’re all in this together.

Over the past several years, the NAAA has taken a strong leadership role in promoting safety.

And Frank Hackett has been a vocal advocate for accelerating our industry’s efforts in this area.

We need to continue working together – we need to hold ourselves accountable – and we need to put competitive differences aside for the greater cause of saving lives.

Protecting the lives of our employees and customers was a responsibility of mine when I opened the Ottawa Auto Dealer Exchange – and it’s a responsibility we all share together today.

I believe we can fulfill that responsibility by focusing on three key areas: culture, innovation and collaboration.

INDUSTRY CALL TO ACTION

Safety is an industry responsibility – pure and simple.

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CULTURE

Let’s start with culture.

I’m sure we’ve all been had the experience of waiting to board a plane – or waiting to take off – when they make an announcement that the cockpit maintenance light turned on.

It usually has nothing to do with the structure of the plane or the ability of the pilots.

But the plane does not take off until the issue is resolved.

That’s the culture – 0% risk.

For passengers – it’s frustrating and inconvenient. But the airlines are saving lives.

The truth is, safety isn’t always convenient – and it does take extra time and effort.

But it needs to be part of our culture – and it needs to start from the top.

Whether you’re an auction owner, an executive or a yard manager – as leaders, it’s up to us to set the tone and the positive example for our employees.

They look to us for guidance, so we need to make safety a part of our everyday dialogue.

And they need to see our commitment to safety in our day-to-day actions. At KAR, we have executive and business unit safety committees, and dedicated safety coordinators at each location.

The truth is, safety isn’t always convenient – and it does take extra time and effort.

But it needs to be part of our culture – and it needs to start from the top.

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And I take every opportunity I can to reinforce the importance of safety with our employees and our leadership.

But like anything, talking about it will only get you so far – you also need tactical approaches to promote safety within your operating culture.

It’s not about creating another set of rules or policies – it’s about finding ways to make safety automatic and just “part of what you do.”

At KAR, we set out five years ago to create a culture of safety that would engage every employee at every location and every level of the organization – and so “Safe T. Sam” was born.

Many of you are very familiar with the Safe T. Sam program, because we’ve partnered with the NAAA to make it available to all NAAA member auctions.

The program includes different levels of safety training and awareness depending on each employee’s role and responsibilities.

But all 17,600 KAR employees in all 310 locations across the US, Canada, Mexico and the United Kingdom are required to complete their designated training each year.

Last year, our employees completed nearly 300,000 hours of safety training.And even though this represents a huge investment in time, resources and workload, we’ve seen the program paying off.

Since we launched Safe T. Sam, our total injury rate has dropped – even as we increased employee headcount by 43%.

CULTURE

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We’re also seeing some very positive momentum from across the industry. There are now 88 NAAA member auctions and almost 10,000 auction employees who are 100% safety certified.

This is a great achievement – or as I like to see it – “a great start.”

Safety is a journey; it’s not a project or some finish line we will eventually cross. And every day, our operations and behaviors at the auction are changing.

So we need to keep up with these changes. We need to continuously evaluate how well we’re performing on safety and we need to keep innovating.

In my opinion, if we are truly following through on our commitment to safety, we need to focus as much time, resources and creativity into safety as we do our business operations.

CULTURE

We need to continuously evaluate how well we’re performing on safety and we need to keep innovating.

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INNOVATION

When it comes to safety – innovation can be a double-edged sword.

Innovation is all around us, and new discovery in one area often leads to innovative new applications in other businesses – but it can also increase risks.

Take auctions and mobile technology, for example.

There is no question that advances in digital technology have made our businesses faster, smarter and more convenient than ever before.

Customers can use mobile phones to participate in online auctions, arrange financing and transportation services and even launch their own auctions right from the palm of their hands.

But mobile phones also create a variety of new safety risks and challenges for the auctions.

Opening doors for VIN scans while cars are in the lanes, for example, dramatically increases the likelihood of distracted driving and inadvertent acceleration.

And because customers – like all of us – are doing more on their phones, they spend more time looking down – and less time looking around being aware of their surroundings.

Now, you might ask, why not just ban cell phone use at the auctions – like Honolulu, Hawaii has done for pedestrians crossing the street.

The answer is: because mobile phones have become essential tools of our trade.

So it forces us to be innovative about how we work with this technology – not against it – to capture all of the benefits and value while protecting against dangers of distraction.

One approach KAR is currently exploring is the use of motion sensors and LED light strips.

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The concept is simple: motion sensors are installed above the lanes and when cars move, the sensors trigger flashing red LED light strips installed on the floor of the lanes.

So even if dealers are heads down checking Facebook, Twitter or the latest Auto Remarketing email, they would still be alerted to the fact cars are in motion and they need to be careful.

Another recent auction innovation came from ADESA Montreal – who was just awarded the “Grand Prize for Safety Innovation” from Canada’s Commission on Labor Health and Safety Standards.

Our team in Montreal designed a new “wheel dolly” that reduces manual intervention when transporting inoperable vehicles.

The dolly allows for safer movement of customer vehicles on the auction lot – while also reducing risk to employees and customers.

These are good examples of how we’re innovating to improve safety...and we will continue to test new safety ideas in every corner of our organization.

So, I’d like to shift to a question I am often asked: “Why don’t we just stop running cars altogether and do everything online?”

There is no question that online and digital transactions reduce some of the inherent risks of physical auctions.

And just like retail purchases, banking and other industries in our lives, we are seeing more and more auctions, sellers and dealers “going digital.”

Last year, our ADESA and IAA businesses sold about 50% of their inventory to online buyers …

And we continue to see increased volume on our OPENLANE platform and our TradeRev dealer-to-dealer mobile app marketplace.

INNOVATION

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And it’s certainly not just KAR. Many other auctions are expanding digital solutions that, when taken as a whole, can certainly reduce safety risks.

But going digital alone is not a silver bullet solution.

Not every injury occurs on a sale day – and cars still need to be moved, parked, detailed and imaged – all of which create risk – whether it’s sale day or not.

Additionally, not every seller is ready to move cars to a digital-only solution and many buyers still prefer to see and touch cars at the physical auction before making a purchase decision.

The industry’s continued expansion into the digital era can play a meaningful role in improving safety, but ultimately, we need a two-front approach.

First, we need to keep innovating to reduce risks and make the physical auctions as safe as possible.

And second, we need to engage our sellers and buyers in a direct, open and honest dialogue about accelerating the move to a safer, digital marketplace. In both cases, when we find something that works – when we’ve proven that a technique or approach is making a difference – we need to share it with the world.

Which brings me to my final point regarding collaboration.

INNOVATION

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When I think about collaboration and breaking down competitive barriers, the “gold standard” example that comes to mind is the world of cybersecurity.There is arguably no company, government or individual who is immune from a cyberattack.

The threats grow more numerous and more sophisticated each day – and security breaches are rarely contained to a single system or location.

Very early on, public and private entities figured out that no one had all the answers – and that the best way to protect confidential and proprietary information – was to work together.

There are now cybersecurity work groups and councils at every level of government and collaborative task forces dedicated to the same across almost every industry – and KAR is very active in that dialogue.

And through those regular discussions, these groups collectively – and effectively – identify, prevent and mitigate thousands of potentially harmful cyber events each and every day.

We need to start viewing auction safety through that very same lens … and approach it with the same degree of cooperation and collaboration.

No single auction or company has all of the answers, and the power of our collective expertise will greatly outweigh what any one of us could accomplish on our own.

As auctions discover new ways to make lanes safer, we should be sharing those techniques so others can evaluate and adopt those same measures at their own facilities.

And when a safety event occurs, we need to act quickly to determine the root cause and then broadly disseminate the lessons learned across our industry.

COLLABORATION

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By understanding the factors that lead to an accident, we can help prevent other auctions from making the same mistakes.

The key to success here is being proactive – our industry’s dialogue on safety cannot be passive or episodic.

And as productive as conferences like this one can be – they’re not enough to keep us all educated and informed on the latest developments in safety. The NAAA does have an active safety committee and task force, but we need greater and more active participation from auctions of all sizes – in all geographies.

And we need to be deliberate about creating new forums and channels that help us routinely share ideas, test new approaches and partner on potential new breakthroughs in safety.

Several months ago – in partnership with the NAAA – KAR hosted a Safety Day at our ADESA Boston location that was attended by representatives from 14 different auctions.

And while we shared many of KAR’s safety protocols, we also learned many new approaches that the other auctions in attendance had implemented.

Similarly, last month in Indianapolis, NAAA convened executives from many of the major auction groups to discuss ways to expand the dialogue and accelerate innovation in safety.

COLLABORATION

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Our discussions focused on things like: dealer safety training – personal safety equipment for employees – and the need for better and more coordinated emergency response plans when accidents occur.

I know Frank’s team is working on formalizing some of these recommendations, and the NAAA will take the lead on distributing that information as it’s finalized.

Quick story regarding that meeting – as the day was wrapping up, a comment was made that this was the first time in over twelve years that the leaders of these groups had all come together to specifically address auction safety.Twelve years.

I know I speak for Frank and the other leaders who participated in saying we’d like to see this group double or triple in size and to meet much, much more frequently.

COLLABORATION

We need to be deliberate about creating new forums and channels that help us routinely share ideas, test new approaches and partner on potential new breakthroughs in safety.

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In closing, I’d like to share one more statistic with you – and I’ve intentionally left it for the end so it wouldn’t overshadow all of the positive work underway.

But since 1992, more than 100 individuals have lost their lives due to accidents, fires, falls or other injuries sustained in the U.S. wholesale auto industry.

That’s 100 husbands, wives, moms, dads, brothers, sisters, loved ones, coworkers and friends.

Ladies and gentlemen – 100 is too many – one is too many – and one more is something our industry should do absolutely everything in our power to prevent.

We need to transform safety from concept – to priority – to reality – and we need to start today.

As I look out across this room, I’ve known many of you for ten, twenty, even 30 years.

We’ve worked together, we’ve had dinner together, we’ve competed with each other – and together we’ve seen a lot of change in our industry.

But no matter how much our business evolves, at its core, the auction business is still all about the people and the communities where we live and work.

Let’s stay focused on keeping those people safe, and keep safety at the top of our list.

We are all in this together. Safety is our responsibility and together we can make it happen.

Thank you.

CONCLUSION

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The KAR group of companies provides sellers and buyers across the global wholesale used

vehicle industry with innovative, technology-driven remarketing solutions. KAR’s unique

end-to-end platform supports whole car, salvage, financing, logistics and other ancillary and

related services, including the sale of more than 5 million units valued at over $40 billion

through our auctions. Our integrated physical, online and mobile marketplaces reduce risk,

improve transparency and streamline transactions for customers in 110 countries.

Headquartered in Carmel, Indiana, KAR has approximately 17,600 employees and maintains

business units across the United States, Canada, Mexico and the United Kingdom.

the path forward safety in the open...

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