CarMax 2013 Annual Report Download - page 14

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 allow us to track repair history and
enable trend analysis, which guides our continuous improvement efforts.
Customer Credit. We offer financing alternatives for retail customers across a wide range of 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 2013, 90% of our applicants received an approval from one or more of our
sources. We periodically test additional third-party providers.
Retail customers applying for financing provide credit information that is electronically submitted by sales
consultants through our proprietary information system. A majority of applicants receive a response within five
minutes. Vehicles are financed using retail installment contracts secured by the vehicles. Customers are permitted
to refinance or pay off their contract within three business days of a purchase without incurring any finance or
related charges. Depending on the credit profile of the customer, third-party finance providers generally either pay
us or are paid a fixed, pre-negotiated fee per contract. The fee amount is independent of any finance term offered to
the customer; it does not vary based on the amount financed, the term of the loan, the interest rate or the loan-to-
value ratio. We refer to the providers who pay us a fee as prime and nonprime providers, and we refer to the
providers to whom we pay a fee as subprime providers. We have no recourse liability on retail installment contracts
arranged with third-party providers.
We do not offer financing to dealers purchasing vehicles at our wholesale auctions. However, we have made
arrangements to have third-party financing available to our auction customers.
Systems
Our stores are supported by an advanced, proprietary information system that improves the customer experience,
while providing tightly integrated automation of all operating functions. Customers can search our entire vehicle
inventory through our website, carmax.com, and our mobile apps. They can also print a detailed listing for any
vehicle, which includes the vehicle’s features and specifications and its location on the display lot. 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 integrated inventory management system tracks every vehicle through its life from purchase
through reconditioning and test-drives to ultimate sale. Using radio frequency identification (“RFID”) tags and bar
codes, all vehicles are scanned and tracked daily as a loss prevention measure. Test-drive information is captured
using RFID tags, linking the specific vehicle and the sales consultant. We also capture data on vehicles we
wholesale, which helps us track market pricing. A computerized finance application process and computer-assisted
document preparation ensure rapid completion of the sales transaction. Behind the scenes, our proprietary store
technology provides our management with real-time information about many aspects of store operations, such as
inventory management, pricing, vehicle transfers, wholesale auctions and sales consultant productivity. In addition,
our store system provides a direct link to our proprietary credit processing information system to facilitate the credit
review and approval process of CAF and third party providers.
Our proprietary inventory management and pricing system is centralized and allows us to buy the mix of makes,
models, age, mileage and price points tailored to customer buying preferences at each CarMax location. This
system also generates recommended initial retail price points, as well as retail price markdowns for specific vehicles
based on complex algorithms that take into account factors including sales history, consumer interest and seasonal
patterns. We believe this systematic approach to vehicle pricing allows us to optimize inventory turns, which
minimizes the depreciation risk inherent in used cars and helps us to achieve our targeted gross profit dollars per
unit.
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