CarMax 2006 Annual Report Download - page 14

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12 CARMAX 2006
FINANCE ORIGINATIONS
■CarMax has created a unique finance origination process
that provides significant customer benefits and competi-
tive 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 if neither CAF nor the third-party
prime finance company makes an offer.
●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 financing process reduces or eliminates two of the
three risks inherent in used car lending.
●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 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-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
finance companies benefit from superior information
quality in making financing decisions.
●The consumer risk — the customer’s willingness and
ability to pay — is the basic risk borne by all lenders.
■Having a captive finance operation also reduces the
sales risk associated with changes in third-party credit
availability.
Straightforward finance originations Reconditioning systems