CarMax 2011 Annual Report Download - page 18

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their spending priorities. We typically experience an increase in subprime traffic and sales in our fourth quarter,
coincident with tax refund season.
Products and Services
Merchandising. We offer customers a broad selection of makes and models of used vehicles, including both
domestic and imported vehicles, at competitive prices. Our used car selection covers popular brands from
manufacturers such as Chrysler, Ford, General Motors, Honda, Hyundai, Kia, Mazda, Nissan, Toyota and
Volkswagen and luxury brands such as Acura, BMW, Infiniti, Lexus and Mercedes. Our primary focus is vehicles
that are 1 to 6 years old, have fewer than 60,000 miles and generally range in price from $11,000 to $32,000. For
the more cost-conscious consumer, we also offer used cars that are more than 6 years old or have 60,000 miles or
more and that generally range in price from $8,000 to $23,000.
We have implemented an everyday low-price strategy under which we set no-haggle prices on both our used and
new vehicles. We believe that our pricing is competitive with the best-negotiated prices in the market. Prices on all
vehicles are clearly displayed on each vehicle’s information sticker; on carmax.com and on applicable online
classified sites on which they are listed; and, where applicable, in our newspaper advertising. We extend our no-
haggle philosophy to every component of the vehicle transaction, including vehicle appraisal offers, financing rates,
accessories, and ESP and GAP pricing.
Reconditioning and Service. An integral part of our used car consumer offer is the reconditioning process. This
process includes a comprehensive Certified Quality Inspection of the engine and all major systems, including
cooling, fuel, drivetrain, transmission, electronics, suspension, brakes, steering, air conditioning and other
equipment, as well as the interior and exterior of the vehicle. Based on this quality inspection, we determine the
reconditioning necessary to bring the vehicle up to our quality standards. Our technicians complete vehicle
inspections. We perform most routine mechanical and minor body repairs in-house; however, for some
reconditioning services, we engage third parties specializing in those services. Some superstores depend upon
nearby, typically larger, superstores for reconditioning, which increases efficiency and reduces overhead.
All CarMax used car superstores provide vehicle repair service, including repairs of vehicles covered by our ESPs.
We also provide factory-authorized service at all new car franchises. We have developed systems and procedures
that are intended to ensure that our retail repair service is conducted in the same customer-friendly and efficient
manner as our other operations.
We believe that the efficiency of our reconditioning and service operations is enhanced by our modern facilities, our
information systems and our technician training and development process. The training and development process
and our compensation programs are designed to increase the productivity of technicians, identify opportunities for
waste reduction and achieve high-quality repairs. Our information systems provide the ability to track repair history
and enable trend analysis, which serves as guidance for our continuous improvement efforts.
Wholesale Auctions. Vehicles purchased through our in-store appraisal process that do not meet our retail standards
are sold through on-site wholesale auctions. As of February 28, 2011, wholesale auctions were conducted at 51 of
our 103 superstores and were generally held on a weekly or bi-weekly basis. Auction frequency at a given
superstore is determined by the number of vehicles to be auctioned, which depends on the number of stores in that
market and the consumer awareness of CarMax and our in-store appraisal offer. The typical wholesale vehicle is
approximately 10 years old and has more than 100,000 miles. Participation in our wholesale auctions is restricted to
licensed automobile dealers, the majority of whom are independent dealers. To participate in a CarMax auction,
dealers must register with our centralized auction support group, at which time we determine the purchase limit
available to each dealer. We make conditional announcements on each vehicle, including those for vehicles with
major mechanical issues, possible frame or flood damage, branded titles, salvage history and unknown true mileage.
Professional, licensed auctioneers conduct our auctions. The average auction sales rate was 97% in fiscal 2011.
Dealers pay a fee to us based on the sales price of the vehicles they purchase.
Customer Credit. We offer financing alternatives to customers throughout the credit spectrum through CAF and our
arrangements with several industry-leading financial institutions. We believe our program enables us to capture
additional sales and enhances the CarMax consumer offer. Credit applications are initially reviewed by CAF.
Customers who are not approved by CAF may be evaluated by the other financial institutions. Having an array of
finance sources increases discrete approvals, expands finance opportunities for our customers and mitigates risk to
CarMax. In fiscal 2011, more than 80% of our applicants received an approval from one or more of our sources.
We have tested, and will continue to test, other third-party financing providers.