Carmax: A Good Value?

Have you ever been to an auto auction? Some may consider an auctioneer to be a ‘carny’. He talks at over 200 mph. Mumbling what appears to be nothing more than gibberish and random numbers.

But if you added all the sales up by those supposed hucksters, you would soon realize that only Wall Street and Walmart sell more goods over the course of a year. Over ten million cars are bought and sold at auctions by these professionals. Hundreds of thousands of dealers have access to the vehicles. With all that free market competition taking place, Carmax is just one of many dealers that must compete for all those cars.

Can Carmax offer a ‘good value’ compared to all that competition?

The fairest way to look at this is to compare apples to apples. Ebay is a godsend in this respect. Their online auction marketplace offers the products of thousands of dealers and with a ‘completed items’ section, it’s fairly easy to match and pair similar products that Carmax offers with ones from online dealers that have strong positive feedback.

So let’s compare…

This wasn’t surprising. To be blunt about it, Carmax has to pay a lot of middlemen. They have a fully staffed corporate office, over ten thousand employees and $4 billion in long-term debt. Between the shareholders, executives, bondholders, employees, and contractors, there is a lot of margin that needs to be made on each one of their cars.

An online seller doesn’t have anywhere near this expense. Since virtually all dealer auto auctions cater to independent used car dealers, the barriers to buying the same cars as seen above is between small and non-existent.

Carmax can acquire some vehicles in ‘closed sales’ where the manufacturer will restrict purchases to new car dealers. However these opportunities are very few and far between and most Carmax dealerships have no new car franchise.. As shown by some of Ebays larger sellers, you can generally get the same type of vehicle without having to pay a healthy four-figured premium.

Does Carmax have some advantages? Absolutely. You typically don’t have to wait as long to buy your car. Like any brick and mortar dealership, you also have an extensive number of vehicles to check out and test drive beforehand. A lot of folks like to kick the tires first before buying anything. Carmax does offer that luxury along with the assurance of a 5 day money back guarantees and a 30 day ‘Limited’ warranty.

But there is also nothing stopping the same customer from test driving a vehicle at a local dealership and then buying it online for thousands less. This is where Carmax falls short. For those who already know what they want and are patient with the buying process, online dealers are the way to go. Many of the vehicles that are sold by Carmax already have manufacturer warranties that far eclipse the 30 day ‘Limited’ warranty. So the assurance of this restrictive warranty is usually minimal at best.

Unless you need it right now, the large scale online dealer will usually have the better deal.