CarMax 2005 Annual Report Download - page 14

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12
CARMAX 2005
FINANCE ORIGINATIONS
■CarMax has created a unique finance origination
process that provides significant customer benefits and
competitive advantages.
•The sales consultant collects the customer’s credit
information and electronically submits the credit
application to CarMax Auto Finance (“CAF”) and
a third-party prime finance company. Applications
are automatically rerouted to third-party nonprime
finance companies and then to a subprime finance
company if there are no other credit offers made.
•Customers see each offer directly from the finance
company, and, where multiple offers exist, they may
choose the offer that best suits their needs.
•We provide a 3-day payoff option, which gives
customers up to three business days to replace the
financing 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
minimized 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 finance companies
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-driv-
en finance manager to distort the facts on the price or
quality of the vehicle or the consumer credit informa-
tion.With the price of all components fixed, value-ori-
ented, and non-negotiable at CarMax, both CAF and
third-party finance companies 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.
REGION MANAGEMENT TEAMS