Tom Williams Used Cars – Twenty-five years ago this week, a new shop on West Broad Street in Henrico County offered consumers very different ways and did not bargain to buy used cars. CarMax was born. The self-selected group of CarMax employees, many of which were brought from the parent company Circuit City, have been working on revolutionary business concepts in secret for more than a year. The ideas of City Circuit CEO Richard L. Sharp are to see if a large-scale retailer approach to selling TV and equipment can work with used vehicles.
When the curtain is raised at the first CarMax store, the startup team feels the concept is solid, but there is no guarantee that it will happen. “We have to find out, A, if someone will buy a car from us,” said Laura Donahue, who came from Circuit City to work on the project more than a year before it was launched.
Tom Williams Used Cars
Used car businesses have image and trust issues. CarMax offers a new way to buy used vehicles.
“Then we have to find out if we can make one dollar. We do that. Then all kinds of competitive forces and markets emerge, “Donahue said.
At present, Donahue is the vice president of CarMax marketing services and one of more than 25,000 employees who work in retail stores of more than 190 cars or in their corporate offices.
Goochland County based automotive retailers have a rough start. And there are many opponents.
But CarMax has survived and developed. Now a Fortune 500 company, the largest used vehicle retailer in the country and repeatedly gets ranked on the list of the best places to work.
CarMax during the last fiscal year sold 721,512 vehicles in retail and 408,509 vehicles at wholesale. The company’s revenue reached $ 17 billion and its net income reached $ 664.1 million.
“When I came here 21 years ago, we didn’t make money and no one thought that this could work other than the team here and some executives at Circuit City,” said William “Bill Nash, who became president and CEO of CarMax in 2016.
“I think the reason is because we hold fast to our initial mission, which is to change the industry,” Nash said. “We knew that in 1993 there was a lot of distrust and dishonesty when it came to buying and selling used cars. We know that the industry is ready for change. ”
The used car market is huge – bigger than the new car market. According to the Edmunds car information platform, 39.2 million used cars were sold in 2017, compared to 17.1 million new vehicles.
CarMax’s closest competitor, according to Automotive News, is Penske Automotive Group Inc. headquartered in Michigan and Florida AutoNation Inc., which did not sell half of it as used cars such as last year’s CarMax.
“They have a business model and are stuck with the basic principles of the model,” said George Hoffer, a transportation economist and professor at the University of Richmond, describing CarMax’s approach from time to time.
“They adjust to the market. “They are always on the border and live on the border with technology,” Hoffer said.
But Hoffer and other automotive industry experts raised initial doubts about CarMax’s ability.
One reason: They thought CarMax would pay too much for supplies of used vehicles obtained at wholesale auctions and would not make a profit when selling cars.
“You go to an auction and if you are the highest bidder, you get it. “CarMax must go to the auction and compete with the smallest competitors, wherever they are in the country, to get the inventory,” Hoffer explained.
CarMax made it work with “buying smart,” using technology instead of purchasing chair-of-the-pants to get supplies, said Hoffer, who admitted that he was wrong in the early years about the survival of CarMax.
They know what vehicle to buy, how to price and how long they will sit in place before selling.
“They may be the highest bidder, but they change their inventory much faster so they basically have lower costs,” Hoffer said.
They also know their customer base. A Hoffer study and a colleague did a few years ago observing CarMax customers. Hoffer said the survey results showed high-income and female typical CarMax customers.
“That makes perfect sense. Women think they are harmed when they buy a car. The wonderful thing about CarMax is that everyone gets the same price, “Hoffer said.
One of the initial innovations of CarMax was to use a computer touch screen that allows consumers to scroll through lists and images of cars that meet parameters for the price or type or color of the model, or all of that. This happened in the days before the internet.
Today, consumers are conducting research on turbulent websites and cellular applications that offer a virtual “360” view of the vehicle’s interior by moving the cursor or sliding a finger.
But whether you walk to a lot of CarMax or shop virtually, the price you see is the price you pay. That hasn’t changed.
CarMax initially crawled and did not generate annual profits for the first time until 1999.
But when the CarMax star rose, the core business of Circuit City’s parent company fell.
In 2000, City Circuit suffered its first loss in more than a decade. The company restructured its business, overhauled several shops and fired workers – but none of them functioned. Best Buy rivals, who at one time trailed the City Circuit, are now beating it in the consumer electronics business.
“Circuit City was a better company than Best Buy, but [Circuit City] didn’t adjust, they didn’t pay attention, they didn’t change,” said Austin Ligon, who came to Circuit City in 1990 to become head of business strategy and help launch CarMax .
Ligon, co-founder of CarMax, served as president of CarMax from 1995 to 2006 and as its CEO from 2002 to 2006.
CarMax split from Circuit City in 2002 to become an independent publicly traded company. City Circuit setbacks continued, and electronic retailers filed a Chapter 11 bankruptcy petition in November 2008. In January 2009, Circuit City announced that it closed all 600 US stores, closing the last in March 2009, which affected 39,000 employees.
Just a few weeks before the end of Circuit City, CarMax celebrated its 100th store opening but put a brake on expansion as the economy weakened and the country was in recession related to the subprime mortgage disaster.
“Caring for our partners is our main focus throughout the recession,” said Tom Folliard, who joined CarMax before the network opened its first store in 1993. He became CEO in 2006.
“While we stop saving growth at all, we continue our investment in training and developing our partners. We multiplied our efforts to increase our execution, and we finally came out of a much stronger corporate recession. ”
Folliard led the company for a decade. During that period, CarMax grew from having around 70 used car outlets in 34 markets to around 160 stores in 37 states. Annual revenues during that time grew from $ 6.26 billion to $ 15 billion, and net income grew from $ 148 million to $ 623 million.
He retired as CEO in September 2016 but remained as a non-executive chairman on the CarMax board.
CarMax has been battling competitors for years and continues to work to stay ahead of the pack.
Arizona-based Start Carvana is engaged in the used car sales market. Although almost as large as CarMax, this car is growing rapidly.
Carvana offers the experience of buying a car that is truly online with doorstep deliveries or shipping in several markets to towering car vending machines. The company plans to build one of the towers at Henrico, not far from CarMax’s main outlet on West Broad Street, but draws on the plan.
But Carvana did not leave. Earlier this year, he blanketed the Richmond area with dozens of billboards along the main highways.
For more than a year, CarMax has tested its own home delivery service, running a pilot program in Charlotte, N.C.
“I think home delivery is just another alternative way to deliver vehicles, whether it’s home delivery or accelerated shipping testing in some markets where customers can do everything online to the point of delivery. They come in the shop, and they can come out in 30 minutes, “Nash said.
“Then we looked for a number of other options about how we could provide a different car than what we did today.”
CarMax also adapts to research that shows car buyers online to see vehicles before they often appear.
While the biggest car shops in CarMax usually have as many as 500 vehicles or more, retailers’ new stores usually have supplies of 120 to 350 vehicles, Nash said.
“If you see our big opening in the past few years, you see that we have taken [shop] footprints,” Nash said. “I think you will continue to see that because we are getting better at execution and we don’t need to have facilities as big as we did when we first started.”
Some of the challenges of the automotive sales industry are not specific to CarMax.
Vehicle subscription services and sharing rides eliminate vehicle ownership at once.
CarMax is the right idea for now – and that’s still true, said Mark O’Neil, who helped open CarMax’s first store and with the company for 10 years.
CarMax created a brand that represents quality used cars, and that is still important today, said O’Neil, now chief operating officer of Cox Automotive, based in Atlanta, a global automotive software and services company. Cox Automotive recently launched a vehicle subscription service that allows customers to switch cars based on their needs. O’Neil doesn’t see that as a competition for CarMax.
“I will put CarMax on the list of potential clients as someone who might be interested and maybe someday want to test the concept like a subscription. “They are certainly in a position with the various cars they have,” O’Neil said.
Analysts continue to like CarMax.
James Albertine, an analyst in charge of the auto industry for New York-based Consumer Edge equity research firm, said new car sales have been strong, thanks to consumer confidence, new automotive technology and dealer incentives.
But the trend of supporting the used car market is heating up as more final-model sports vehicles make their way to the supplies used, he said.
“At a recent event we held, car dealers have talked about consumers buying used-vehicle models – not new vehicles, especially among luxury brands given the inherent value of one to two-year pre-owned vehicles relative to vehicle prices new. We continue to see CarMax as a top-tier second-hand retailer, and we hope sales and profitability will benefit from this ongoing shift, “Albertine said.
Oppenheimer & Co. equity research company Inc., in a June report that reviewed CarMax’s first quarter financial performance, wrote: “We have recommended KMX (the ticker symbol for CarMax) as the top choice for 2018 and very much in line with our positive call on shares. ”
“Everyone rushes into the used car business now because they see that new [sales] cars have been for three years at the 17 million highest units of all time, and that is definitely slowing down,” Hoffer said.
“Used car businesses tend to be more stable than new car businesses, really.”
Is CarMax vulnerable to people like Amazon or Walmart? Walmart last year launched the CarSaver service, which connects customers with new car dealers.
“If you look at the retail world, most retailers run away from Amazon,” Ligon said.
“I always think that CarMax must be valued higher because we are really not vulnerable to Amazon,” he said. “Our business is not compatible with Amazon. If Amazon wants to be in a used car business, they will come and buy CarMax. ”
Or partner with them, said O’Neil, who said he did not see Amazon as a threat to CarMax. Having an efficient distribution system will be very important. Amazon warehouses are not prepared for vehicles.
CarMax is and always is a leader in data usage, O’Neil added.
“When you think of the next retail era … knowing consumers well, having data about consumers, utilizing that data to provide a more personal experience, targeted targeting will distinguish winners from losers. I think CarMax is at the forefront, “he said.
Nash dreamed of CarMax becoming an iconic brand even though competitors like AutoNation wanted to go with some of their customers.
“What that means is not only that we have to continue our games traditionally in our stores, but that also means we continue to innovate and meet customers even outside the store,” Nash said.
CarMax also has a “Explore New Growth” team that looks for ways CarMax can innovate and form partnerships. Companies, which are in more than half of the US market, can only build so many stores. Where did the growth come from after that?
The company announced in November that it had made a minority investment of $ 5 million in RepairPal, an online platform that maintains a list of certified vehicle repair shops that agree to charge reasonable prices and guarantee repairs. Established in 2007, RepairPal has participating stores that have been certified throughout the US.
“They tried to do what we did for the used car business,” Nash said.
For a long time, CarMax has a target to open a total of between 200 and 300 stores. With a shop now, Nash said he took number 200 from the table.
The company has opened 13 to 16 new stores every year in the past few years but is also looking for ways to sell more of the existing locations.
CarMax stores account for 70 percent of the US population, Nash said. This company does not exist in several large markets such as Detroit and New York, even though it has thought about it.
“When I talk about integrating this e-commerce package, we will test several different shipments. I think New York is a great candidate for doing a number of different things because you can’t put a lot of things like this in New York, “Nash said, referring to the original West Broad Street location.
“There is no land available to do this. So you have to be creative in how to convey to customers. “
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