CarMax 2014 Annual Report Download - page 14

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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 2014, 91% 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 for credit losses 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. 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.
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.
Our Electronic Repair Order system (“ERO”) is used to sequence reconditioning procedures. ERO provides
information that helps increase quality and reduce costs, which further enhances our customer service and
profitability.
Through our centralized systems, we are able to quickly integrate new stores into our store network. We continue to
enhance and refine our information systems, which we believe to be a core competitive advantage. The design of
our information systems incorporates off-site backups, redundant processing and other measures to reduce the risk
of significant data loss in the event of an emergency or disaster.
Associates
On February 28, 2014, we had a total of 20,171 full- and part-time associates, including 15,050 hourly and salaried
associates and 5,121 sales associates, who worked on a commission basis. We employ additional associates during
peak selling seasons. As of February 28, 2014, our location general managers averaged 10 years of CarMax