CarMax 2004 Annual Report Download - page 12

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10
CARMAX 2004
FINANCE ORIGINATIONS
■CarMax has created a unique finance origination structure
that provides significant customer benefits and competi-
tive advantages.
•The sales consultant collects the customer’s credit infor-
mation and electronically submits the loan application to
CarMax Auto Finance (“CAF”) and a third-party prime
lender. If there are no prime offers, the application is auto-
matically routed to third-party, non-prime lenders.
•Customers see each offer directly from the lender, and,
where multiple offers exist, they may choose the offer
that best suits their needs.
•We provide a 3-day payoff option, which gives cus-
tomers up to three business days to replace the loan with
cash or an alternative lending source, free of penalty or
interest.
•The sales consultant receives no commission on the
finance process.
■This structure reduces or eliminates two of the three risks
inherent in used car lending.
•The consumer risk — the customer’s willingness and
ability to pay — is the basic risk borne by all lenders.
•The collateral risk — the risk of the vehicle — is mini-
mized by the consistent, high quality of our cars, the
large percentage of vehicles covered by extended service
plans, and the consistency of the relationship between
wholesale and retail values for CarMax vehicles. CAF
and our third-party lenders have found they can rely on
CarMax information to determine true vehicle worth.
•The “intermediary” risk — the risk introduced by the
person between the customer and the finance source —
is eliminated at CarMax. There is no commission-
driven finance manager to distort the facts on the
price or quality of the vehicle or the consumer credit
information. With the price of all components fixed,
value-oriented, and non-negotiable at CarMax, both
CAF and third-party lenders benefit from superior
information quality in making financing decisions.
■Having our own finance operation also reduces the sales
risk associated with changes in third-party credit availability.