CarMax 2014 Annual Report Download - page 9

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5
superstores in 64 metropolitan markets. In addition, we are one of the nation’s largest wholesale vehicle auction
operators, based on the 342,576 wholesale vehicles we sold through our on-site auctions in fiscal 2014.
We were the first used vehicle retailer to offer a large selection of high quality used vehicles at low, “no-haggle”
prices using a customer-friendly sales process in an attractive, modern sales facility. Our consumer offer allows
customers to shop for vehicles the same way they shop for items at other “big-box” retailers. We provide low, no-
haggle prices; a broad selection of CarMax Quality Certified vehicles; and superior customer service. Our strategy
is to revolutionize the auto retailing market by addressing the major sources of customer dissatisfaction with
traditional auto retailers and to maximize operating efficiencies through the use of standardized operating
procedures and store formats enhanced by sophisticated, proprietary management information systems.
Our consumer offer enables customers to evaluate separately each component of the sales process, including the
purchase of a vehicle, the financing of that vehicle, the purchase of extended service plans for that vehicle and the
sale of the customer’s current vehicle to CarMax. Customers can make informed decisions based on comprehensive
information about the options, terms and associated prices of each component and can accept or decline any
individual element of the offer without affecting the price or terms of any other component of the offer. Our no-
haggle pricing and our commission structure, which is generally based on a fixed dollars-per-unit standard, allow
sales consultants to focus solely on meeting customer needs.
All of the used vehicles we retail are thoroughly reconditioned to meet our high standards, and each vehicle must
pass a comprehensive inspection before being offered for sale. In fiscal 2014, 85% of the used vehicles we retailed
were 0 to 6 years old.
Vehicles purchased through our in-store appraisal process that do not meet our retail standards are sold to licensed
dealers through our on-site wholesale auctions. Unlike many other auto auctions, we own all the vehicles that we
sell in our auctions, which allows us to maintain a high auction sales rate. This high sales rate, combined with
dealer-friendly practices, makes our auctions an attractive source of vehicles for independent used car dealers. As of
February 28, 2014, we conducted weekly or bi-weekly auctions at 60 of our 131 used car superstores.
In addition, we sell new vehicles at four locations under franchise agreements with three new car manufacturers. In
fiscal 2014, new vehicles comprised only 1% of our total retail vehicle unit sales.
Our finance program provides customers financing alternatives through CAF, our own finance operation, and third-
party financing providers. This program provides access to credit for customers across a wide range of the credit
spectrum. 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 originate and procure high quality auto loans. CAF originates loans solely through CarMax
stores, customizing its offers based on the customer’s risk profile, to support CarMax retail vehicle unit sales. All of
the finance offers by CAF and our third-party providers are backed by a 3-day payoff offer whereby a customer can
refinance their loan within three business days at no charge.
We provide customers with a range of other related products and services, including the appraisal and purchase of
vehicles directly from consumers; the sale of extended service plans (“ESP”) and guaranteed asset protection
(“GAP”); and vehicle repair service.
We have separated the practice of trading in a used vehicle in conjunction with the purchase of another vehicle into
two distinct and independent transactions. We will appraise a consumer’s vehicle and make an offer to buy that
vehicle regardless of whether the owner is purchasing a vehicle from us. We acquire a significant percentage of our
retail used vehicle inventory through our in-store appraisal process. We also acquire a large portion of our used
vehicle inventory through wholesale auctions and, to a lesser extent, directly from other sources, including
wholesalers, dealers and fleet owners.
Our proprietary inventory management and pricing system tracks each vehicle throughout the sales process. Using
the information provided by this system and applying statistical modeling techniques, we are able to optimize our
inventory mix, anticipate future inventory needs at each store, evaluate sales consultant and buyer performance and
refine our vehicle pricing strategy. Because of the pricing discipline afforded by the inventory management and
pricing system, generally more than 99% of the entire used car inventory offered at retail is sold at retail.