Beepi and Vroom and Carvana - will they make a DENT?

[ruggles]

Of course they walk some deals. And the drop price amd make other concessions.
"Educate the Market?" Now that's funny.

Are you sure you read Tom Hudson's piece? "One Price isn't just about CarMax. I worked in a One Price store in 1970. It's not a new thing. It's a method to sell and make gross. You dont get the big gross because you're afraid to ask for it. And you send the cheap deals to the competition while trying to make it up in volume. Not new.

Yea, the brand has power with some. Word is getting out. About gross profit. Dealers charge themselves retail for internal and recon. Carmax doesnt. Equalize the accounting and then compare.

It's not that I believe so, I know it's the case. I worked there for almost 8 years, I opened several new markets where I personally had to let customers walk away as we educated the market.

Making "concessions" happens from time to time in the spirit of customer service to right a wrong. If a car was needed additional repairs and was not covered by the CarMax warranty sure they may choose on a case by case basis to help. If they made a mistake on an appraisal and it was brought to their attention they may choose to partner with another store manager to reevaluate it. I assure you these are not forms of negotiation.

As for the prices they have been higher than average since 1993. This is no secret and it is a testament to the power of their brand and if you want to sell them a car with issues I'm sure they are okay with that too. They make $900 a car in their wholesale auctions.

 

[Chris Cachor]

Of course they walk some deals. And the drop price amd make other concessions.
"Educate the Market?" Now that's funny.

Are you sure you read Tom Hudson's piece? "One Price isn't just about CarMax. I worked in a One Price store in 1970. It's not a new thing. It's a method to sell and make gross. You dont get the big gross because you're afraid to ask for it. And you send the cheap deals to the competition while trying to make it up in volume. Not new.

Yea, the brand has power with some. Word is getting out. About gross profit. Dealers charge themselves retail for internal and recon. Carmax doesnt. Equalize the accounting and then compare.

Excellent response @ruggles

 

[Alexander Lau]

 

[Cullen C]

Of course they walk some deals. And the drop price amd make other concessions.
"Educate the Market?" Now that's funny.

Are you sure you read Tom Hudson's piece? "One Price isn't just about CarMax. I worked in a One Price store in 1970. It's not a new thing. It's a method to sell and make gross. You dont get the big gross because you're afraid to ask for it. And you send the cheap deals to the competition while trying to make it up in volume. Not new.

Yea, the brand has power with some. Word is getting out. About gross profit. Dealers charge themselves retail for internal and recon. Carmax doesnt. Equalize the accounting and then compare.

I'll try to simplify my points for you @ruggles

"Educating the market" = Me personally having countless discussions with customers as we launched new markets unfamiliar with how CarMax operates. Explaining the company's no negotiation philosophy, building value based on the brand equities(the ability to sell your car regardless of buying one from CarMax; no-negotiation; single point of contact, low pressure sales approach; 125 point inspection, 10 man hours of recon per vehicle; no questions asked money back guarantee; transparent finance, etc). Some of those talks ended with a customer asking for an additional $100 on a trade or asking for us to lower the price of a car. Those customers left. A lot came back later and said they thought we would come chasing after them as they headed to their car.

I am confused how your next two points can live together inside your mind. 1) CarMax is afraid to ask for big gross. 2) They have extremely high prices. If you actually believe both of those points are true then you must also believe that they pay way too much for vehicles, both at auction and directly from customers. But if those two factors are true then how could they produce more vehicle margin per unit than most dealer groups? How would they also generate $900 margins on wholesale vehicles?

It's pretty funny that you say "the brand has power with some". I guess you could classify 600,000 or so customers buying into the concept every year that way. I would not.

I would never say the CarMax brand is immune to changes in customer behavior, I think Carvana has forced their hand resulting in a few recent strategic changes. I was only disagreeing that these price concerns were a recent objection. It may seem to be more widespread now with social but I assure you it is not new.

And no, to be clear, I did not read a word of the article you posted.

 

[ruggles]

So you educated SOME consumers. That's a far cry from "educating the market."

If you claim "no negotiation," you'd probably better do it that way. No concessions. The CarMax methods are a mirror image of the store I was hired into in 1970. AS I mentioned, this is nothing new. I might also add that the CarMax approach works better in a strong market than a weak one. These days there are many substandard sales methods that are profitable because the market is so good. Record low interest rates and fewer dealers doing record business makes many think they are smarter than they are. That said, CarMax has certainly established a brand image and sold a lot of cars. They're inventory management systems are probably the best in the industry. They have managed to make their auction selling system work quite well. But it is also clear that CarMax uses different accounting methods from franchise dealers, so trying to make apples to apples comparisons yields invalid results.

RE: "It's pretty funny that you say "the brand has power with some". I guess you could classify 600,000 or so customers buying into the concept every year that way. I would not."

Let's see. Used car sales about 45 million. CarMax sales 600K. Yup, the very definition of "some."

RE: " am confused how your next two points can live together inside your mind. 1) CarMax is afraid to ask for big gross. 2) They have extremely high prices. If you actually believe both of those points are true then you must also believe that they pay way too much for vehicles, both at auction and directly from customers. But if those two factors are true then how could they produce more vehicle margin per unit than most dealer groups? How would they also generate $900 margins on wholesale vehicles?

First, see my comments about the different accounting methods. Second, I said CarMax is getting a reputation for high prices. High prices and high gross profit are two different things. There will always be those sucked in by a particular marketing message. Some consumers fall for the $3500. minimum trade pitch. Others fall for the "we won't be undersold." CarMax has earmarked a particular type of consumer who is too lazy to shop and takes the course of least resistance. Bottom line: If you don't ask for all the money, you won't get it. If you send customers to your competition, you don't get those either. Your business model holds out for a certain type of consumer. Ask yourself this question. Did CarMax finance all of its locations out of profits and retained earnings, or was it something else?

None of this to say that CarMax is an unsuccessful enterprise. Just keep your feet on the ground. I hope you don't own any Tesla stock.

 

[craigh]

I hope you don't own any Tesla stock.

https://www.bloomberg.com/graphics/2017-lithium-battery-future/


Real issue that nobody wants to talk about.

 

[Cullen C]

So you educated SOME consumers. That's a far cry from "educating the market."

If you claim "no negotiation," you'd probably better do it that way. No concessions. The CarMax methods are a mirror image of the store I was hired into in 1970. AS I mentioned, this is nothing new. I might also add that the CarMax approach works better in a strong market than a weak one. These days there are many substandard sales methods that are profitable because the market is so good. Record low interest rates and fewer dealers doing record business makes many think they are smarter than they are. That said, CarMax has certainly established a brand image and sold a lot of cars. They're inventory management systems are probably the best in the industry. They have managed to make their auction selling system work quite well. But it is also clear that CarMax uses different accounting methods from franchise dealers, so trying to make apples to apples comparisons yields invalid results.

RE: "It's pretty funny that you say "the brand has power with some". I guess you could classify 600,000 or so customers buying into the concept every year that way. I would not."

Let's see. Used car sales about 45 million. CarMax sales 600K. Yup, the very definition of "some."

RE: " am confused how your next two points can live together inside your mind. 1) CarMax is afraid to ask for big gross. 2) They have extremely high prices. If you actually believe both of those points are true then you must also believe that they pay way too much for vehicles, both at auction and directly from customers. But if those two factors are true then how could they produce more vehicle margin per unit than most dealer groups? How would they also generate $900 margins on wholesale vehicles?

First, see my comments about the different accounting methods. Second, I said CarMax is getting a reputation for high prices. High prices and high gross profit are two different things. There will always be those sucked in by a particular marketing message. Some consumers fall for the $3500. minimum trade pitch. Others fall for the "we won't be undersold." CarMax has earmarked a particular type of consumer who is too lazy to shop and takes the course of least resistance. Bottom line: If you don't ask for all the money, you won't get it. If you send customers to your competition, you don't get those either. Your business model holds out for a certain type of consumer. Ask yourself this question. Did CarMax finance all of its locations out of profits and retained earnings, or was it something else?

None of this to say that CarMax is an unsuccessful enterprise. Just keep your feet on the ground. I hope you don't own any Tesla stock.

Not sure why I continue down these rabbit holes with you but....once more into the breach......

CarMax works in every market, strong markets like Atlanta and Dallas and I assume you would consider places like Jackson, Tennessee; Columbus, Georgia and Harrisonburg, Virginia weak markets, they work there as well.

Could you clarify your point on the mystery of CarMax's accounting? You make it seem as if they are running some giant shell game and their profits are less real than other dealers.

You could not be more wrong on CarMax going after "lazy customers" that are sucked in by "marketing message". CarMax has operated in a way that has turned customers into brand ambassadors and advocates before that was even a thing people talked about. Their customers are on average more informed, more educated and have better discretionary income than average dealers.

At least you somehow allowed yourself to admit that CarMax isn't an unsuccessful enterprise......phew.......thanks.....

 

[Salete]

I had a friend recently buy from Carvana... she provided some insight when I asked her why:

What she fails to realize is that she did buy from DEALER. #SMH

 

[ruggles]

First, CarMax wasn't built organically. It was built from the sale of stock. That is why it grew so fast. This is not to say that haven't done a good job, but there is an important distinction between growing by selling vehicles and through retained earnings versus raising capital through stock sales.

Second, I already explained the difference between CarMax and traditional dealers in accounting for internal work. I'm not saying one is better than the other. I am saying they are different, making comparisons between the two invalid. But since I'm on the subject, the CarMax method IS better. But its still different and margins are overstated compared to traditional dealers. Yes, they are a successful enterprise. I never said they weren't. But they ain't perfect and are vulnerable on many fronts.

Third, since their growth hasn't been organic, and is a result of stock sales, its invalid to claim their "success" is because of their sales model, ALTHOUGH it IS possible that their ability to raise capital through stock sales was boosted by the perception of their sales model.

Fourth, their sales model has worked much better in this era of fewer dealers and lower interest rates. So called "One Price" stores work better when times are good. Many can make money while giving away profit because they don't ask for it, and walking cheap deals to competitors. Lets see what happens through a complete business cycle before you take a victory lap. The vast majority of cars are still sold via negotiation.

Fifth, YES, CarMax has brand ambassadors. They also have brand naysayers, and that number is growing. You can find this out easily via Google. OR, just go to The Truth About Cars or other sites.

Not sure why I continue down these rabbit holes with you but....once more into the breach......

CarMax works in every market, strong markets like Atlanta and Dallas and I assume you would consider places like Jackson, Tennessee; Columbus, Georgia and Harrisonburg, Virginia weak markets, they work there as well.

Could you clarify your point on the mystery of CarMax's accounting? You make it seem as if they are running some giant shell game and their profits are less real than other dealers.

You could not be more wrong on CarMax going after "lazy customers" that are sucked in by "marketing message". CarMax has operated in a way that has turned customers into brand ambassadors and advocates before that was even a thing people talked about. Their customers are on average more informed, more educated and have better discretionary income than average dealers.

At least you somehow allowed yourself to admit that CarMax isn't an unsuccessful enterprise......phew.......thanks.....

 

[AdamMurray]

First, CarMax wasn't built organically. It was built from the sale of stock. That is why it grew so fast. This is not to say that haven't done a good job, but there is an important distinction between growing by selling vehicles and through retained earnings versus raising capital through stock sales.

Second, I already explained the difference between CarMax and traditional dealers in accounting for internal work. I'm not saying one is better than the other. I am saying they are different, making comparisons between the two invalid. But since I'm on the subject, the CarMax method IS better. But its still different and margins are overstated compared to traditional dealers. Yes, they are a successful enterprise. I never said they weren't. But they ain't perfect and are vulnerable on many fronts.

Third, since their growth hasn't been organic, and is a result of stock sales, its invalid to claim their "success" is because of their sales model, ALTHOUGH it IS possible that their ability to raise capital through stock sales was boosted by the perception of their sales model.

Fourth, their sales model has worked much better in this era of fewer dealers and lower interest rates. So called "One Price" stores work better when times are good. Many can make money while giving away profit because they don't ask for it, and walking cheap deals to competitors. Lets see what happens through a complete business cycle before you take a victory lap. The vast majority of cars are still sold via negotiation.

Fifth, YES, CarMax has brand ambassadors. They also have brand naysayers, and that number is growing. You can find this out easily via Google. OR, just go to The Truth About Cars or other sites.

I've been enjoying just sitting back and watching this discussion blossom. However, I have to ask a question here...

What does being publicly traded have to do with anything? You say, "their sales model has worked much better in this era of few dealers..." The top 7 retailers in this country (and leaders of the consolidation movement) are all publicly traded companies. Would you say that groups like Penske, Group 1, Asbury and Sonic can only claim success because of their stockholders?