CarMax 2013 Annual Report Download - page 11

our dealer-friendly practices. Because we own the cars that we auction, we generally sell more than 95% of the
vehicles offered, which is substantially higher than the sales rate at most other auto auctions. Our policy of making
vehicle condition disclosures, noting mechanical and other issues found during our appraisal process, is also not a
typical practice used at other auctions of older, higher mileage vehicles. Together, these factors make our auctions
attractive to dealers, resulting in a high dealer-to-car attendance ratio.
CarMax Auto Finance: CAF operates in the auto finance sector of the consumer finance market. This sector is
primarily comprised of banks, captive finance divisions of new car manufacturers, credit unions and independent
finance companies. This sector represented approximately $800 billion in outstanding receivables as of December
31, 2012 according to industry data. As of February 28, 2013, CAF had $5.93 billion in managed receivables,
having originated $3.45 billion in loans during the fiscal year. For loans originated during the calendar quarter
ended December 31, 2012, CAF ranked 20th in market share for all vehicle loans and 9th in market share for used
vehicle loans.
CAF’s competitive advantage is its strategic position as the primary finance source in CarMax stores. We believe
the company’s processes and systems, transparency of pricing, vehicle quality and the integrity of the information
collected at the time the customer applies for credit provide a unique and ideal environment in which to procure high
quality auto loans. CAF utilizes proprietary scoring models based upon the credit history of the customer along with
CAF’s historical experience to predict the likelihood of customer repayment. Because CAF offers financing solely
through CarMax stores, scoring models are optimized for the CarMax channel.
CAF’s primary competitors are banks and credit unions that offer direct financing to customers purchasing cars from
dealers. Some of our customers have already obtained financing prior to shopping for a vehicle and do not apply for
financing in the store. We also offer customers the ability to pay off their loans within three days without penalty.
The percentage of customers exercising this option can be an indication of the competitiveness of our rates.
Marketing and Advertising. Our marketing strategies are focused on developing awareness of the advantages of
shopping at our stores and on carmax.com and on attracting customers who are already considering buying or selling
a vehicle. Our marketing strategies are implemented primarily through television and radio broadcasts, carmax.com,
Internet search engines and online classified listings. We also reach out to customers and potential customers to
build awareness and loyalty through Facebook, Twitter and other social media. Television and radio advertisements
are designed to build consumer awareness of the CarMax name, carmax.com and key components of the CarMax
offer. Broadcast and Internet advertisements are designed to drive customers to our stores and to carmax.com.
We strive to adjust our marketing programs in response to the evolving media landscape. We have customized our
marketing program based on awareness levels in each market. We have transitioned a portion of our television and
radio advertising to national cable network and national radio programming and we will continue to seek to optimize
our media mix between local and national distribution. In addition to providing cost savings, this transition allows
us to build awareness of CarMax prior to our entrance into new markets. We are also building awareness and
driving traffic to our stores and carmax.com by listing retail vehicles on online classified sites. Our advertising on
the Internet also includes advertisements on search engines, such as Google and Yahoo!, as well as online properties
such as Pandora and Hulu.
Our website, carmax.com, is a marketing tool for communicating the CarMax consumer offer in detail, a
sophisticated search engine for finding the right vehicle and a sales channel for customers who prefer to complete a
part of the shopping and sales process online. The website offers complete inventory and pricing search capabilities.
Information on each of the thousands of cars available in our nationwide inventory is updated several times per day.
Carmax.com includes detailed information, such as vehicle photos, prices, features, specifications and store
locations, as well as advanced feature-based search capabilities, and sorting and comparison tools that allow
consumers to easily compare vehicles. The site also includes features such as detailed vehicle reviews, payment
calculators and email alerts when new inventory arrives. Virtually any used vehicle in our nationwide inventory can
be transferred at customer request to their local superstore. Customers can contact sales consultants in a variety of
ways, including online via carmax.com. Customers can work with these sales consultants from the comfort of
home, including applying for financing, and they need to visit the store only to complete the final steps of the
transaction, such as signing the paperwork and picking up their vehicle. We also have a mobile website and mobile
apps that allow customers to search for and view cars on their smartphones and other mobile devices. Our survey
data indicates that during fiscal 2013, approximately 80% of customers who purchased a vehicle from us had first
visited us online.
7