Comments on: How Car Dealers Help CarMax Buy Cars

By: mstiger

mstiger — Mon, 10 Aug 2009 17:05:53 +0000

$1,200 – $1,500 per vehicle?? Well, if that’s true, that blows the “CARMAX spends much less than dealers do on recon.” argument. That is by far the highest recon.-per-unit figure I have ever heard of..We spend about $300 avg. per vehicle and charge a retail labor rate.

By: JCreran

JCreran — Thu, 23 Jul 2009 04:38:20 +0000

Im sorry I got on this one a few days in. There are two ways to view the RECON thing and most dealers in my area do charge the Used Department full retail labor rate. The battle rages about front end gross and it should be better. It doesnt take much to run up a $1000.00+ recon ticket, trust me I know. If we look at the dealership as a whole, what owner in their right mind would take fixed op income and “move” it to sales? The last few months, I have been questioning my recon practices. I mentioned to a Dealer over a year ago paying the used car manager a portion of service and he looked at me like I had 2 heads. Hmmm…

-John Creran

By: dpollak

dpollak — Tue, 14 Jul 2009 22:41:38 +0000

Amen brother!

Dale

By: carbuyer

carbuyer — Tue, 14 Jul 2009 21:07:57 +0000

Brandon- That is a common misconception about Carmax and their buyers. They absolutely are held accountable for their purchases. Their purchases are closely monitored by a very experienced management team. It may seem like they just have a blank checkbook and will ring the bell on all purchases but that is not true. Their whole business model is based on turning their inventory. Frankly if you don’t have turn in your vocabulary you are dead in the water in the retail market today.

By: Craig Belowski

Craig Belowski — Fri, 10 Jul 2009 14:43:23 +0000

Very well said. When looking at a vehicle based on a “can we sell it and make a profit in 30 days or less” basis it changes the game.

There are 2 different markets to pay attention to. The wholesale market was traditionally where the most educated consumers operate…..in today’s efficient marketplace the retail consumer tends to be the most educated at least when it comes to what is available and what is a “fair” price. The used car market of today is trending more towards a true efficient market, however there are still lots of wholesale buyers making decisions on “herd” mentality and hunches and I’m sure if we look at their inventories they are riddled with retail problems.

By: JoePistell

JoePistell — Thu, 09 Jul 2009 19:58:40 +0000

well said carbuyer.

By: brandon

brandon — Thu, 09 Jul 2009 18:20:22 +0000

I would argue that the reason CARMAX can pay what they pay for vehicles is not because of their “outside the box” thinking. The main reason they pay what they pay is that their “buyers” arent spending their own money and they dont give a damn what they pay for it. After they buy it, its no longer their responisibilty to sell it.

By: carbuyer

carbuyer — Wed, 08 Jul 2009 18:08:22 +0000

I can tell you that Carmax does not move aged vehicles accross the country like that on purpose. This is not cost effective for any dealer even Carmax. In fact is the market in LA or Minneapolis that different from say Florida? For some vehicles sure, but Carmax is a big player in program cars that tend to stay relatively the same accross the country.

They do pack their vehicles and spend about $1200-$1500 on each vehicle in reconditioning. This has been their process for some time. The key to why the seem to pay so much more for a vehicle is simply because they know what they can sell this vehicle for. This gives the illusion that they are paying so much more over market. If you knew what you could sell a vehicle for in your market would it matter what the book or auction data said?

By: mstiger

mstiger — Tue, 07 Jul 2009 15:03:03 +0000

I always enjoy your articles and appreciate ideas that go “against the norm”. However, while I agree with most of your points here, you forgot to mention the main reason that Carmax can and often does overpay: If it sits on the lot in, say, Atlanta for 30 days they can simply move it to the store in L.A. or Minneapolis, where the market is completely different and the vehicle will probably sell.

Unlike Carmax, the independent dealer typically has “one shot” at a used vehicle purchase. Once he buys it, it’s his and his alone until he retails it or takes a wholesale loss. Why should he pay $2,000 over market value for something just to break even or lose money on it in the end? Sure, it’s okay to step up every now and then and take a risk, but to compare a huge conglomerate like Carmax to the average car dealer is to compare apples to oranges.

By: kkocourek

kkocourek — Fri, 03 Jul 2009 03:11:35 +0000

Dale,

We just finished our third month in business at our Hyundai/Kia store. Here are the results. We sold 47 used units with 30 cars in stock. Our gross per car was over $1,400 per car plus F&I. Our turn is 24 and our cars are in stock for an average of 15 days. We started with Auto-trader mid month and we are spinning up our DPVs. All of our inventory is purchased online with out leaving the store. In all my years in the car business I have never hit 10% net on sales…..Until now! Thank You for your guidance and your friendship. Keith