CarMax 2014 Annual Report Download - page 11

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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. According to industry sources, this sector represented approximately $800 billion in outstanding
receivables as of December 31, 2013. As of February 28, 2014, CAF had $7.18 billion in managed receivables,
having originated $4.18 billion in loans during the fiscal year. For loans originated during the calendar quarter
ended December 31, 2013, industry sources ranked CAF 7th in market share for used vehicle loans and 17th in
market share for all vehicle loans.
We believe that CAF’s principal 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 traditional and digital methods, including
national and local 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 also build awareness and drive traffic to our stores
and carmax.com by listing retail vehicles on various online automotive 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.
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. Our carmax.com website and related
mobile apps are marketing tools for communicating the CarMax consumer offer in detail, sophisticated search
engines for finding the right vehicle and a sales channel for customers who prefer to initiate part of the shopping and
sales process online. The website and mobile apps offer complete inventory and pricing search capabilities.
Information on 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. Customers can contact sales consultants in a variety of
ways, including online via carmax.com. Customers can also schedule appointments, hold a vehicle for up to seven
days and initiate a vehicle transfer using online tools. Our survey data indicates that during fiscal 2014,
approximately 80% of customers who purchased a vehicle from us had first visited us online.
We also maintain a website, carmaxauctions.com, that supports our wholesale auctions. This website, which is
accessible only by authorized dealers, provides listings of all vehicles that will be available in upcoming auctions. It
also has many features similar to our retail website, including vehicle photos, free vehicle history reports and vehicle
search and alert capabilities.