CarMax 2008 Annual Report Download - page 10

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business and the sale of extended warranties. Lastly, 10% of
gross profit came from the finance side of our business,
including CarMax Auto Finance income and the fees we
received from third-party lenders.
CarMax significantly grew gross profit per retail and
wholesale vehicle over the last several years primarily
because of improvements in buying, reconditioning and sell-
ing techniques. Determining the appropriate appraisal offer
amount and pricing our vehicles is a fine art that we con-
tinue to refine through our analytical expertise and years of
experience. Marketplace trends are reflected in the prices
we receive weekly or bi-weekly at our auctions, currently
held at 49 of our stores, and informs our appraisal offers. We
continue to attract more bidding by auto dealers at our auc-
tions by focusing on improving their experience. In addition
to third party-provided floorplan financing, a robust website and the ability to view AutoCheck vehicle histories at no
charge, we also share key information about the wholesale vehicles we sell, and sell nearly all of the vehicles we auction.
We also have initiatives underway that will help our associates reduce waste and take unnecessary costs out of our
reconditioning process. We continue to evaluate our reconditioning process, including which reconditioning activities
are most important to the customer and how to purchase and utilize supplies in the most cost-effective manner. While
we have come a long way with reconditioning process improvements, we believe there are still significant additional
opportunities to decrease costs while simultaneously improving quality.
10 | CARMAX 2008
CarMax’s unique model has yet to be successfully duplicated. Aside from our
skilled and dedicated workforce, perhaps the greatest barriers to entry by com-
petitors are our well-tested proprietary systems and processes, including our
inventory management system, our pricing models and our appraisal systems,
which we upgraded in fiscal 2008 and will continue to refine and improve.
It would be difficult for a competitor to easily or quickly replicate our
vast store of knowledge about used vehicle values gleaned from selling a total
of nearly 2.5 million vehicles at retail, wholesaling well over 1 million vehi-
cles and appraising more than 9 million vehicles since we opened our first
store in 1993. By the end of fiscal 2008, CarMax had successfully opened 89
used car superstores and developed experienced, knowledgeable and
engaged managers to run these and future stores.
Unlike many auto retailers, CarMax has a diversified profit stream;
no competitor has its own finance and wholesale operation. Our primary busi-
ness is the retail sales of used vehicles, which drives the growth rate
of everything else we do. In fiscal 2008, the gross profit derived from retail
vehicle sales contributed approximately 63% of the sum of total gross profit
and CAF income. Additionally, approximately 15% of our gross profit came
from our wholesale business—vehicles purchased from our customers that do
not meet our retail standards and are sold to licensed dealers at our CarMax
auctions. And another 12% of gross profit was related to our vehicle service
WE BELIEVE OUR
UNIQUE BUSINESS
MODEL, PROPRIETARY
PROCESSES AND
SYSTEMS, STRONG
RESULTS AND
SOLID GROWTH
OPPORTUNITY
TOGETHER CREATE
EXCEPTIONAL LONG-
TERM VALUE FOR
SHAREHOLDERS.
RETAIL
63%
RETAIL
63%
WHOLESALE 15%
ESP/Service 12%
FINANCE 10%
DIVERSIFIED PROFIT STREAM
SHAREHOLDERS
Percentages represent breakdown of gross profit dollars
and CarMax Auto Finance income.