2008 Interview with: Copart Inc. (CPRT-NASDAQ), Founder, Chairman and CEO, Willis J. Johnson - featuring: their vehicle remarketing services to process and sell salvage vehicles through a completely virtual auction-style trading platform, principally to licensed dismantlers, rebuilders and used vehicle dealers and exporters.
|Copart Inc. (CPRT-NASDAQ)|
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Making The Switch To Internet Sales Has
Allowed Copart To Reach More Than 100,000 Buyers From 94 Countries
While other kids were playing sports, Johnson would milk cows twice a day and learn about different kinds of businesses from his dad, who dabbled in many ventures from building houses to running restaurants and lumberyards.
It is no wonder that Johnson himself became an entrepreneur, founding Copart, Inc., in 1982 with just one salvage auction. The hard work and entrepreneurial spirit he got from his father has since helped him take the company public and grow it to more than 140 locations in the United States, Canada, and United Kingdom.
Johnson’s vision has also turned Copart from a salvage auction company to a technology company by revolutionizing the industry with VB2 – an online technology that has replaced live auctions with Internet sales. Buyers no longer have to drive all over to bid on vehicles, but can purchase them from yards all over the nation from the comfort of their computer. VB2 has allowed international buyers to purchase salvage vehicles as well, tearing down geographical barriers. Today, Copart has more than 100,000 buyers from 94 countries thanks to the convenience of VB2.
Johnson has a passion for his business and for his employees. What drives him, he says, is helping to make his employees and investors wealthy through Copart’s success. And while he isn’t milking cows anymore, he’s still up just as early – usually arriving at work between 5:30 and 6 a.m. Although Copart is a $4 billion company that continues to grow, Johnson is one CEO who is never content to rest on his laurels.
Copart, founded in 1982, provides vehicle
suppliers, primarily insurance companies, with a full range of vehicle
remarketing services to process and sell salvage vehicles through a
completely virtual auction-style trading platform, principally to licensed
dismantlers, rebuilders and used vehicle dealers and exporters. Salvage
vehicles are either damaged vehicles deemed a total loss for insurance or
business purposes or are recovered stolen vehicles for which an insurance
settlement with the vehicle owner has already been made. The Company
currently operates 145 facilities in the United States, Canada and the
United Kingdom. It also provides services in other locations through a
network of independent salvage vehicle remarketers. Copart also recently
launched a new division of the company – CopartDirect – that
remarkets vehicles for the public at most of its North American facilities.
Mr. Johnson: “My vision, when I founded Copart, was for it to be just a local company. I had no vision whatsoever of taking the company public. I was an auto dismantler and I had a chain of what you call a self-service pool of yards. They were a chain of normal full service dismantling yards, and some parts houses and I had to buy one auction house in Vallejo, California. I was growing; I owned everything, and I didn’t have to report to anyone. Therefore, I just used my profits to build the company bigger, so every year I put in another dismantling yard or I put in a Copart yard.
When I got to about five yards our competitor, Insurance Auto Auctions, went public, I realized that you can get money from the public market and not have to pay it back. I thought that was a really neat, American way of doing business, so I took my company public. I was excited to take the company public and I brought some investor bankers in and they said, ‘Well Willis, you’ve got to sell off your other businesses. You need to sell off the dismantling chain and parts houses and concentrate on Copart.’ They also told me that they would lend me $10 million, but I’d have to give them 26 percent of Copart.
I had to pay 8% interest, but it was a gamble I decided I wanted to take. Therefore, I borrowed the money and I sold off all my other companies – some of them to employees. From then I started growing Copart and a year later we went with the public offering and I was able to pay off the loan.”
CEOCFO: What has happened since going public?
“For the last 15 years now, we have kind of measured our growth; we don’t
try to grow fast, we don’t try to grow too slow. Wall Street pays very well
for good, steady growth. Therefore, that’s how we plan our growth. It is not
because we get ambitious and not because we get lazy. We just measure our
growth in the double digits between 10 and 15% every year, by the number of
stores we have. Then we can control our growth.
That’s a lot of savings right there, because we are picking up the cars and saving money on the cost of bringing them in. We are a centralized company; not decentralized; and all of our decisions about our locations are run out of corporate. They are all tied together with computers, so our managers are trained to do a couple of things. One is not to actually manage a full-blown company. They manage picking up the car, getting them secured, taking the pictures of them, doing the paper work, clearing the car and selling it. They don’t have to worry about anything other then taking care of their cars, and their employees.”
CEOCFO: You call yourself a Change-centric Company; what does that mean?
Mr. Johnson: “It means, basically, that we continue to change with the times, and that we embrace change. You have to change to meet the needs of your customers. The whole world is changing every day, and if you don’t change with it, you’re going to be left behind. Our ability to change is what has made Copart so successful.
“For example, when I first got into the business, all of the cars were still being sold through sealed bids. Then we changed it to a live verbal auction where we had an auction truck and we went down the lane and auctioned the cars one at a time. From there we went to listing the cars on the internet and letting people either bit on the internet prior to the sale, or come to the sale and bid. Then we let them bid over the internet during a live sale – which was really complicated.
“Then, in 2003, we switched everything to 100% internet with the development of our technology called VB2 – which stands for Virtual Bidding – the second generation. We use VB2 today to sell cars over the internet to buyers all over the world so they don’t have to physically come to the sale. VB2 had made us a technology company because now all of our insurance companies also communicate to us through the computer system and through the Internet. They assign us cars through the computer; check on sales, and approve bids. We have pictures of all our cars on the internet so all of our buyers can look at them. Buyers can do their inspection, pay for their cars - everything over the Internet. Now, when we have a big auction in one of our larger locations - maybe only 15 or 20 buyers will show up, and these are all the old timers. They still want to come in and see the cars but most of them find it more convenient to do everything online. VB2 also has allowed people from other countries to bid on cars. We’ve got quite an international following thanks to VB2 – more than 100,000 buyers in 94 countries. Today, more than 26 percent of all our cars are purchased by buyers outside of the United States. They can sign up on the web, they can send us all their export papers and become a buyer and they never can set foot in America.
Our buyers bid the cars, they pay us by wire and then the cars are assigned to a brokerage company that does the shipping for them. They put them in containers and they are shipped overseas. A lot of our buyers outside the United States have never even entered the United States. All they know is they see pictures on the web, and they can buy them.”
CEOCFO: How do you inspect the cars over the internet?
Mr. Johnson: “There are five to ten pictures of every automobile - left front corner, right front corner, left, rear mirror, inside, outside of the cars. This allows the buyers to see all around the automobile. They can see the year, make and model and the ID break down of what kind of motor transmission they are going to have. They can see all of that. These are professional buyers that buy salvage cars or repossessed cars. From those pictures, they pretty much know what they can get out of those parts or if they can rebuild it or not.
CEOCFO: You have facilities across the country; is there much difference from one-to-another or is it cookie cutter?
Mr. Johnson: “They are pretty much cookie cutters. They are pretty much all the same. They are just big 30, 40, 50 acre lots of stored automobiles. The average car sits for 60 to 90 days because people actually got hurt in these cars and there are lawsuits on them. The Insurance companies have got to pay the banks off. The average car sits for a while and we have to convert it from a clean title to a salvaged title for them to depart with the vehicle. Therefore, we have to store lots of cars; hundred of thousands of cars.”
CEOCFO: What’s the competitive landscape like for you?
“There are two big players in the market place with us. One is Insurance
Auto Auctions, and the other one is a Manheim Auctions. The rest of them are
all independent mom and pops that are out there.”
CEOCFO: Why are your customers choosing Copart?
“The number one reason why our customers come to us is relationships. We’ve
built relationships for many years now with our customers. It has been 26
years since I started Copart, but I was already in the business prior.
Therefore, we have a lot of relationships that we have built up over time.
“The second reason is that we are a very stable company. And the third reason is our technology. The whole world is changing to better and better technology. Copart has always stayed up on technology so that our customers can use that technology to communicate, pick up cars, and do their business better.”
CEOCFO: Tell me a little bit more about the international aspect; are there any geographical areas you would like to move into that you are not into now?
Mr. Johnson: “Yes, we are in Canada and the United Kingdom now. We probably have 25 to 30% of the cars in the UK. We know that we can only take a certain percentage of the automobiles there and after that we will start looking in other parts of Europe to see where we want to be. There are a lot of automobiles around the world that we could help sell using our technology.”
CEOCFO: What is the financial picture for the company today?
Mr. Johnson: “We’ve actually been buying stock back because of our growth. We know we’ve got good growth and we know where to generate more cash. We really need to keep our growth up, so with the cash that we are drawing we can grow and we can buy our own stock back if we think that the stock is not at the right value. In the past we have been doing that and we are still keeping our growth up. We plan to add another 10 to 15 yards next year as our growth continues and that is not counting our growth in the UK. Therefore, we are still building our footprint in America, UK and Canada. Right now we earn enough money to sustain our growth and to re-buy our stocks too.”
CEOCFO: Is it difficult to find new locations?
Mr. Johnson: “It’s still difficult to buy locations because nobody wants a 40 acre storage lot of wrecked cars in their neighborhood. Usually I get denied probably eight out of every ten applications that I put in. When I find a big commercial piece of land, we make an offer on it. However, we have to go to a city council where they know that they need us, because they need somebody to take care of these cars. As long as there are accidents, these cars will always exist. Therefore, the biggest part of it right now is finding locations.”
CEOCFO: How does the challenging economic situation reflect on Copart?
Mr. Johnson: “I’ve been in the salvage business for 40 years, and our economy is bad right now, but Copart always does better in bad times. You’ve got to look at the business we are in. When times are very good people are buying a lot of new cars. In bad times people don’t buy the new cars, they buy more used cars. That means for dismantlers, they are selling more used cars. That also means that they buy more used parts in order to keep the cars that they currently have running. Therefore, demand for our cars is higher at this point. We always do better in a bad economy. But we always do well in a good economy too.
We have also been handling a lot more repossessed cars and more charity cars. We are also handling a lot more dealer trade-in cars because we have such a big buying force overseas. Our markets are more than the normal dealer auctions; we have more buyers from South America, Panama, Poland and Russia than they do. These are growing countries where people can’t afford a $35,000 or $40,000 car. However, they can afford a $6,000 car and fix it over there for a couple thousand more and have a nice American car. There’s a big demand for inexpensive cars in these other countries. Labor is cheap and they need automobiles.”
CEOCFO: Sum it up for potential investors; why should people be interested and what might people miss about Copart that they really should know?
Mr. Johnson: “What investors may miss when first looking at Copart is that we are a recycler – we recycle a major commodity in America. America revolves around food, women’s make-up and cars. But once you wreck a car it goes out of site and out of mind. Copart has also been out of site and out of mind for a long time, but the market has been good to us. Our earnings have been good and now we are starting to get a little recognized and people are starting to understand what happens to all of these wrecked automobiles. Somebody has to handle them and we happen to be the largest middleman there is in moving and taking care of these automobiles. We get them collected, do all the paper work and then move them out to the appropriate buyers around the world.”
CEOCFO: Final thoughts; what should people remember most about Copart?
“We are a good basic company; like a utility company, you’ve got to have us.
People need power and water, and the country needs someone to get rid of
their wrecked cars. As long as we are run well, there is always going to be
“What investors may miss when first looking at Copart is that we are a recycler – we recycle a major commodity in America. America revolves around food, women’s make-up and cars. But once you wreck a car it goes out of site and out of mind. Copart has also been out of site and out of mind for a long time, but the market has been good to us. Our earnings have been good and now we are starting to get a little recognized and people are starting to understand what happens to all of these wrecked automobiles. Somebody has to handle them and we happen to be the largest middleman there is in moving and taking care of these automobiles. We get them collected, do all the paper work and then move them out to the appropriate buyers around the world.” - Willis J. Johnson
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