CarMax, and a Lesson in Data

June 24, 2015

Last Friday the Wall Street Journal released an article featuring how CarMax was seeing a decrease in the selling prices of their used cars. This signaled a cause for concern across the industry. However, this was followed up by a piece in Auto Remarketing on the same day that gave more insight and data in to what is happening at CarMax.

Wall Street Journal:

“A big used-car retailer said on Friday that its average selling prices slipped 1.6% in the fiscal first quarter, a caution flag for a U.S. auto industry that has relied on rising used-vehicle prices to prop up demand for new automobiles.

Virginia-based CarMax Inc. said its average transaction prices in the three months ending May 31 fell to $19,851, down from $20,173 in the same period a year ago. CarMax’s used-vehicle prices cooled in the latter part its fiscal year ending Feb. 28, and the first-quarter data signals the trend is continuing.

If you looked just at this you might think the bottom is falling out of the market. The article goes on to discuss the fact that we will see a rise in used car inventory, possible interest rate increases and other signals that could point to a popping of the used car pricing bubble. But that is not the entire picture at CarMax.

Auto Remarketing:

“CarMax announced first-quarter results for the start to its 2016 fiscal year, reporting another record quarter for sales and earnings…And net earnings grew 7.3 percent to $182 million.

…In fact, total used units sales rose by 9.3 percent from 150,528 sold a year ago. This time around, the company sold 164,510 used vehicles in Q1. This represented sales worth $3.3 million, up from $3 million in Q1 fiscal 2015.

So, what is this all telling us?

Buying Smarter and Pricing Efficiently is a Must

While it is true that the average selling price is down, CarMax is still able to increase revenue and volume. From this we can assume that the company is being smarter about putting the right inventory on its lot. They are making sure they are acquiring the right cars that will move, and purchasing them at a lower wholesale price.

By buying smarter and pricing according to market they are able to still grow their business while moving more automobiles at a better margin, even though the average individual vehicle price is down.

What can the industry as a whole take from this?

Get Cars that Will Move and Make Money

Find the right cars:

  1. Invest in the right inventory that will move in not only your market, but specifically on your property.
  2. Buy at the optimal value so that you can in turn maintain or grow your GP.

What is the Secret to Success? “Transparency”

The biggest piece to take from CarMax is their ability to create a culture of transparency. By giving the customer the right amount of information about the vehicle they have built trust in their selling process. This trust carries over in to the ability to sell the costs at their margins without having to add additional discounts. And even if you are not as large as CarMax you can also create this same selling environment by building trust in your process. You can create that sense of transparency and value in your vehicle and pricing by providing:

  1. Third party evidence
  2. Provide pricing proof points (Price vs Book)
  3. Providing original OEM specific packages and equipment in your descriptions
  4. Carfax reporting
  5. Expert reviews and awards
  6. Crash test ratings

While this is not all inclusive, it is an example of the data that consumers today rely on to make sure they are getting top value for their purchase. It is not new news that the consumer today is doing volumes of research before ever stepping foot on your lot. By providing them valuable information about the products on your lot up front you are setting up your culture of trust and transparency and setting yourself apart from the market. The transparency experience needs to happen on the lot and it needs to be put in the hands of your salespeople, as they are the ones delivering the message from your dealership to the consumer.

Level the playing field for them. Instill processes and procedures that encompasses the entire lifecycle of automobiles on your lot. From making smarter purchases for your specific dealership,  to creating trust with your buyers in how you market your cars, to the tools and messages your sales people use when face to face with your consumers; in today’s car buying experience everything counts. CarMax is an example that when you focus on the entire process you can still grow your business and profit margin even when your average top line sale is lower.