CarMax 2013 Annual Report Download - page 13

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-Benz. Our primary focus is
vehicles that are 0 to 6 years old and generally range in price from $12,000 to $34,000. For the more cost-conscious
consumer, we also offer used cars that are more than 6 years old. The mix of our used vehicle inventory by make,
model and age will vary from time to time, depending on consumer preferences.
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. 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. 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.
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, 2013, wholesale auctions were conducted at 57 of
our 118 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. Participants in CarMax auctions must be licensed
automobile dealers and are required to register with our centralized auction support group. The majority of the
participants are independent automobile dealers. We provide condition disclosures 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 2013. Dealers pay a fee to us based on the sales price of the vehicles they purchase.
Extended Service Plans and Guaranteed Asset Protection. At the time of the sale, we offer the customer an ESP.
We sell these plans on behalf of unrelated third parties that are the primary obligors. Under the third-party service
plan programs, we have no contractual liability to the customer. The ESPs we offer on all used vehicles provide
coverage up to 72 months (subject to mileage limitations) and include multiple mileage and deductible options,
depending on the vehicle odometer reading, make and model. We offer ESPs at competitive, fixed prices, which are
based primarily on the historical repair record of the vehicle make and model, the mileage option selected and the
deductible chosen. All ESPs that we sell (other than manufacturer programs) have been designed to our
specifications and are administered by the third parties through private-label arrangements. We receive a
commission from the administrator at the time of sale. In fiscal 2013, more than 60% of the customers who
purchased a used vehicle also purchased an ESP.
Our ESP customers have access to vehicle repair service at each CarMax store and at thousands of independent and
franchised service providers. We believe that the quality of the services provided by this network, as well as the
broad scope of our ESPs, helps promote customer satisfaction and loyalty, and thus increases the likelihood of repeat
and referral business.
We also offer GAP at the time of the sale. GAP is a product that will pay the difference between the customer’s
insurance settlement and the finance contract payoff amount on their vehicle in the case of a total loss or
unrecovered theft. We sell this product on behalf of an unrelated third party that is the primary obligor, and we have
no contractual liability to the customer. GAP has been designed to our specifications and is administered by the
third party through a private-label arrangement. We receive a commission from the administrator at the time of sale.
In fiscal 2013, more than 20% of customers who purchased a used vehicle also purchased GAP.
Reconditioning and Service. An integral part of our used car consumer offer is the renewal process used to make
sure every car meets our high standards before it can become a CarMax Quality Certified (CQC) vehicle. This
process includes a comprehensive CarMax 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. We perform most routine mechanical and
minor body repairs in-house; however, for some reconditioning services, we engage third parties specializing in
those services. Many superstores depend upon nearby, typically larger, superstores for reconditioning, which
increases efficiency and reduces overhead.
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