By on December 28, 2015

Carmax

Earlier this week I wrote about how CarMax is heavily constrained by a market that has flip-flopped between six years worth of heavy car sales and about 18 months of resurgent truck and SUV demand. Long story short, CarMax’s acquisition costs for trucks, SUVs and crossovers has gone up considerably, and the supply of this inventory has cratered due to new car dealers keeping the bulk of this inventory for themselves.

Not everybody liked what I wrote. Case in point.

Within a couple hours of my posting the article on Facebook, I received a response from a good friend who has been linked to CarMax time and time again: Doug DeMuro.

Doug has been a champion of CarMax and their extended warranties in much the same way as I would champion staying the hell away from any extended warranty plan.

Doug loves his Range Rover that he bought from CarMax. I think it’s overpriced junk. He features Hummers and Ferraris. I finance Fords and Suzukis. Doug and I have historically been at polar-opposite ends when it comes to a variety of retail-related topics (extended warranty plans, what used cars to buy, the fact belief that luxury minivans are a dumb idea), and it didn’t long for the two of us to ram heads when it came to CarMax and their recent financials.

Doug DeMuro: There’s no news! CarMax reported $128M in earnings this quarter, down from last year’s $130M. That’s miniscule. And earnings per share was actually up, from 60c to 63c. All companies have bad quarters, and this wasn’t even that. I have absolutely no doubt CarMax will continue along full speed ahead.

Steven Lang: Care to debate me on that Doug?

Doug DeMuro: Right after we debate Amazon being in “big trouble” because they missed earnings in Q3 2014:

http://www.cnbc.com/…/amazon-earnings-95-cents-lost-per…

Since then the stock is up 115 percent and they just passed Wal-Mart as America’s largest retailer by market cap. Time will tell …

Steven Lang: We are on the same wavelength when it comes to Amazon. I even wrote about it on Jalopnik. Carmax is a different story based on market fundamentals. Care to have a friendly public debate?

Doug DeMuro: Unfortunately, neither of us are impartial. You are a competitor of CarMax’s, and have a financial interest in their failure.

Meanwhile, as for me, when I went to drive my Range Rover the other day, it was tilted to one side like the Titanic right before Leonardo DiCaprio froze to death. Also, the power folding mirrors no longer operate. So I have a financial interest in CarMax’s continued success and prosperity, at least until my warranty runs out on December 7, 2018, a date which will live in extended service contract infamy.

Here’s what I propose: instead of a debate, we get a dog and we line him up at a row of car dealerships, next to a CarMax and a name-brand dealer. Then we have the employees stand outside and scream and yell and hold up treats to try to attract the dog. Whoever the dog chooses wins.

NOTE: I also think this is how the World Cup should be decided, and the majority of Division III college football games.

Or we can just check the numbers in a year smile emoticon

EDIT: This may be obvious but I just wanted to note that the dog must be an IMPARTIAL breed, such as a labradoodle or a chihuahua, and not one of those biased great danes, which I am told heavily prefer a) name brand car dealerships and also b) slobbering all over your clothes.

Steven Lang: Funny, but untrue. I don’t sell late-model cars and actually have purchased hundreds of their trade-ins. I want them to succeed but that’s beside the point. I’m offering a third and final opportunity to debate the merits. It’s your call.

Doug DeMuro OK, OK, you don’t like the dog idea. A better plan: you walk into a CarMax. I walk into a name brand car dealer. We both examine their free giveaways to see which is better. Does CarMax free coffee trump Name Brand Dealership bag of Frito’s? Does CarMax free windbreaker trump Name Brand Dealership free glossy brochure of the 2013 RAM 1500, of which they still have nine in inventory??? WE FIND OUT!

IF YOU WANT ME TO BE SERIOUS, which I find very difficult to do, I will say this: it is never, ever, EVER, a good idea to judge a company based on one, or even four, bad quarters. I mean, hell, Volvo has been having bad quarters since like 2004, and they’re still kickin! And I was just in a new XC90, where the infotainment screen is so big it could swallow a child, sort of like in “The Ring” except the child wouldn’t try to kill you, it would merely provide directions in Swedish.

Here’s the reality: CarMax stock was trading around $18 per share in summer 2012, and by summer 2015 it was well above $70 per share. This is a 170 percent increase in three years, and it is unsustainable for ANY company. ANY company in ANY part of the world, selling ANY product. They are bound to slow down. So now they are slowing down, and I think it’s wrong to use one SLIGHTLY off-the-mark quarter say they’re in “serious trouble.” To be honest, I don’t find it a point worth debating. And I would make the same argument for CarMax, or Amazon, or Netflix, or Apple, or the company that makes the chair I’m sitting on. (“Cheap Shit From China Inc.)

So like I said, we will see the numbers in a year. If CarMax is still faltering, then we can debate it! With or without dogs.

Steven Lang: You’re parsing out the facts. CarMax is at the same price point as they were eight years ago and their issues go far beyond having one bad quarter. You insinuating that I base my findings on one bad quarter is almost as deceptive as you promoting extended warranties based on one bad car. If you can offer anything other than canned cliches and Dave Barry impersonations, feel free. Otherwise I’ll see this thread as yet another lightweight song and dance.

Doug DeMuro: Canned cliches? WHICH ONE OF MY CLICHES ARE CANNED? They’re FRESH, dammit, like Whole Foods. LIKE SHEETS OUT OF THE DRYER. LIKE THE PRINCE OF BEL AIR!!!!!

p184062_b_v9_ac

And so our little mini-debate kinda came and went. Doug does have a decent point about one quarter not making a bad company (although he underestimates my familiarity with confused labradoodles since I own one) and I’m right on the money on pretty much everything else.

So what about you? What do you think about CarMax? Is it a company worth investing on this unanticipated quarterly dip? Should you buy your next used car there? Or is Carmax constrained by other forces that go far beyond the scope of our debate? What says you?

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110 Comments on “Steven Lang And Doug DeMuro Debate Carmax...”


  • avatar
    RideHeight

    What a fitting cadenza to the War of the Super Hero T-Shirts I was forced to endure as we opened Christmas presents.

    And both principle combatants were over 40!

  • avatar
    Pch101

    It’s a mistake to confuse stock performance with business performance. A prime example is Tesla, which has had considerable leaps in its stock price even though it doesn’t produce a penny in profit. (Stock prices should theoretically be based upon earnings, and Tesla has no earnings.)

    If late-model used car inventories are a function of new car sales of 2-4 years ago, then it would be reasonable to expect the amount of available inventory to increase as trade-ins and lease returns begin to reflect the latest boom in auto sales. So if you’re worried about inventory constraints compromising the sustainability of the business model, then I wouldn’t.

    I would worry more about the fact that it’s already a pretty large player, so there is only so much room left for it to grow simply for that reason. It may have to modify its business model by entering new areas in order to find new revenue sources, but I don’t follow them (or frankly care enough) to know what those may be and whether it could adapt.

    • 0 avatar
      tonycd

      Actually, PCH, in this twisted era there are cases where stock price is a better indication of business performance than profitability. Amazon is the poster child for this, with Elon Musk churning all the profits back into growth for several years precisely to avoid becoming the focus of excessive profit expectations from Wall Street. After several consecutive years of “failure,” they’re now one of the biggest companies in the world. I hate Amazon, but with the game being played as it is today, that was a deft managerial move.

      • 0 avatar
        Pch101

        You didn’t follow the point, which is that stock price ≠ good business model.

        Musk is not “churning all the profits back into growth.” There are no profits, plus R&D spending is not adequate for long-term growth.

        At this point, Tesla is doing its best to build a brand in the hopes that the company can hang in there long enough to either be acquired or else benefit from lower component (i.e. battery) prices. That may or may not work — using Benjamin Graham’s definitions, that makes Tesla’s stock speculative, not an investment.

  • avatar
    Corollaman

    overpriced this is only for people who hate to haggle and don’t mind paying full priced for cars that have been detailed really well but are not really a good value

    • 0 avatar
      Coopdeville

      True in some cases, but they also offer deals and competitive pricing depending on the location, make/model, and time in inventory. You know, like every car lot. You are free not to buy the cars that are overpriced and leave those for the “suckers,” as you so eloquently named them in another comment.

      Don’t forget that many people are willing to pay more for a better perceived experience. Proof in point – Carmax itself, which is nowhere near going out of business despite using this business model. Instead of being so bitter towards it, why don’t you join them instead of beating them?

      Disclosure, yes I bought from Carmax. My background: one decade in the business, including managing and buying for a medium-large dealership, left to pursue a career in financial services. I’m fairly certain I know how to spot a good price. ;)

    • 0 avatar
      DeeDub

      That’s what I’m seeing too. I’m shopping for a CR-V (AWD base trim) for the wife, looking for a 2014 with less than 30K miles. I’m seeing CPOs on Autotrader and Cars.com for $19K all day long, yet the local Carmax is asking $24K for theirs *without* an extended warranty.

      Either I’m misunderstanding Carmax’s no-haggle policy, or there are a lot more foolish/lazy car buyers out there than I realized.

      • 0 avatar
        Coopdeville

        It’s funny you mention CR-V’s, because when I was shopping I had noticed that had I wanted an Accord, Carmax was way off my list as the prices were too high. Do they jack up their prices on the mainstream stuff?

      • 0 avatar
        kvndoom

        Carmax always pays higher than most dealers for anything with a Honda or Toyota badge on it. They gave me $21k for my Accord, a figure no other place came within 4,000 dollars of. I walked out with a $1600 check. They marked it up 3 grand, and it was sold in like 3 weeks.

    • 0 avatar
      NormSV650

      Are you paying for and driving a car or warranty? Pick the right car and you won’t need a warranty. And I’m not talking mundane, basic V6 Japanese stuff.

    • 0 avatar
      yesthatsteve

      About two years ago, we went to Carmax to check out 2-3-year-old midsize sedans, and narrowed it down to the Mazda6 and the Accord. Asking prices for CPO at the franchised dealers were within a few hundred bucks of Carmax’s no haggle price, making CPO a no-brainer. At the time, every CPO 6 in the area was a former rental car, so we got an off-lease Accord. And the Honda dealer beat our credit union’s financing rate by a full point.

    • 0 avatar
      smartascii

      I agree. People hate car shopping A LOT. A friend of mine bought a Jetta GLI instead of the GTI he set out to get because the first dealer he went to didn’t have a manual GTI. This is a person who is smart, enough of a car enthusiast to want a GTI, and informed enough to understand the difference between the 2015 GTI and 2015 GLI. Doesn’t matter. The thought of doing that process again at a different dealer was so off-putting, he gave the dealer a lot of money for a car he didn’t really want in order to be done THEN. Carmax allows people like this to 1) see a variety of different manufacturers’ vehicles without fighting off a salesperson (it can be hard to actually find help at a Carmax), and 2) Get the car and get it over with. I don’t do car shopping this way, but enough people do that Carmax made more than $100 million last year selling to them.

    • 0 avatar
      bkmurph

      I bought a car in September from CarMax. Their advertised price was within a dollar (!) of the Edmunds TMV, so I went for it. Months later, no regrets.

    • 0 avatar
      tekdemon

      I don’t mind doing the footwork to get a good deal…just helped my parents buy a 2016 Accord V6 EX-L for under $27K with all the fees (over $2000 less than the local Truecar price), but it’s definitely not for everyone. My parents wouldn’t have gotten that kind of price themselves-they wouldn’t have gotten ripped off since they would have either gone with a Costco price or something similar but they would have never gotten a rock bottom price by themselves. If you know that you’re bad at negotiating sometimes Carmax does make sense. A little less so on the used car side since the markups can be heavy, but on the new car side Carmax actually prices their cars fairly aggressively-the default Carmax price on a lot of Toyotas is lower than the quotes we got around our area. I’m sure I could have negotiated a lower price with the dealerships but Carmax offers those prices to anybody.

  • avatar
    MK153

    You can argue financial quarters all day long – to know if a company or product is going to succeed you need to experience it yourself. This is what Doug has done – and you haven’t.

    I believe in Carmax and actually have bought a car (and a warranty!) from them. The actual buying experience was a bit of a mixed bag with them having typos on the paperwork 3 times! It took 6 hours to buy the car which I find ridiculous.

    While they have work to do there… I will say the SHOPPING experience was phenomenal. Their great website, ability to shop nationwide, and inexpensive transfers are their trump cards. The warranty helps with certain models too (I bought a 750 and the warranty was only $2,649 for 58k more miles and 5 years with a $50 deductible).

    Don’t underestimate what a great online shopping experience can do for a company – I looked at their site for ~3 months to find the car I wanted – and did this from wherever I was. A stoplight, the bathroom, work, in bed, you name it. This amazing accessibility is why I shopped there even more than Autotrader or Cars.com.

    • 0 avatar
      PeriSoft

      “The warranty helps with certain models too”

      Yeah, as someone engaged in flights of used, high-end German fantasy, this is relevant to me. But I haven’t found a way to determine whether CarMax’s warranty is (a) worth the paper it’s printed on or (b) determine how much it costs for a given vehicle and age. One presumes they don’t lose money on their warranties, and therefore one presumes that you can’t buy a warranty on a 10-year-old 7 series for the same price as a 4 year old Camry. But maybe there’s a hole through which seekers of Deutchetechnik can drive? I’d like to know how to find out.

      • 0 avatar
        MK153

        Well in my case the 7 series wasn’t 10 years old it was a 2012 – but so far their warranty has paid out. I haven’t broken even on it yet – but as I’m not even a year in I have no doubt that I will:

        The car: https://docs.google.com/document/d/1DhPsTaPE2huAvWVkL3LYaA2aFtrCkYd4-XB3atHw8Tw/edit?usp=drive_web

        • 0 avatar
          PeriSoft

          Damn, that thing is nice. Did you have to start the buying process to learn about warranty costs, or is it listed somewhere up front? I’ve checked but can’t find anything aside from general platitudes.

          Edit: When you need to get it fixed, do you take it to a dealer, or to anywhere, or to a specific CarMax-allowed place? Do you pay and get reimbursed?

          • 0 avatar
            tophatt

            I bought a Grand Cherokee from them with the warranty, once the original factory warranty runs out you can take it to any authorized repair place (dealer for example) or take it to CarMax. If you take it to CarMax they knock $50 off the deductible, in my case that would bring the deductible from $150 to $100. I had to ask the rep the price on the warranty.

            BTW Doug caused the price of these warranties to increase on Range Rovers (he will admit as much on his columns). I was about to buy a 2011 Range Rover Sport; but the warranty was triple the cost of the warranty on the Jeep and had a higher deductible, not only did it affect the price of the deal; but my bank didn’t want to offer as good a rate.

      • 0 avatar
        pragmatist

        People seem to misunderstand these warranties. A warranty is insurance, you pay a fixed amount to cover the risk of paying much more. It’s not about getting more than you pay for (listen up Obamacare groupies).

        I have fire (etc) insurance on my home. I pay money every year that I really hope is ‘wasted’. But if the worst happens, I know I will not be living in a refrigerator box.

        It’s also a psychological thing, depending on your mindset. The same with people buying new cars (at significant cost) because they don’t like the insecurity of possibly being stranded or stuck with a major problem. You could argue that money was a waste, but it was not a waste if the person’s sense of security was satisfied.

        • 0 avatar
          thattruthguy

          A warranty isn’t just insurance. It’s expert knowledge. I had a major mechanical repair under extended warranty. The warranty company sent an adjuster to inspect the car and approve the repair estimate. That’s expertise I don’t have and don’t have time to get when my car is broken.

          • 0 avatar
            krhodes1

            The adjuster is not doing you a favor. They are trying to save their company money. Who do you trust more, an actual mechanic that you choose to go to, or some random guy whose job is ultimately to screw you? Why would you think they know more than the guy who is fixing the car?

        • 0 avatar
          krhodes1

          There is a big problem with a warranty as insurance – the cost/benefit ratio. I can insure my $250K house against a total loss for ~$600/yr. But a few year extended warranty for a car is typically $2000 or so. Call it $500/yr on average. But what is the worst case loss here? Even if the warranty buys you a whole new engine, you might be out $5K-10K. Not worth it, as on average you are at best pre-paying for some repairs that you could afford to do anyway. If you can’t afford the potential repairs, IMHO you can’t afford that car.

          Health insurance, car insurance, and homeowner’s insurance make sense because you can pay hundreds to a couple thousand dollars to insure that you don’t have to pay many tens of thousands, potentially hundreds of thousands of dollars. Paying thousands to insure against a loss of thousands is nonsensical. If I could buy a mechanical insurance policy for a few cents on the dollar like I can homeowner’s insurance I certainly would, but it doesn’t work that way.

          • 0 avatar
            VoGo

            I’ve worked in insurance for a couple of decades now. I tell consumers this: There are only three instances in which it makes sense to buy insurance:

            1. The government requires it. Alternatively, your lender requires it if you need to take out a loan against the asset.

            2. You know something the insurer doesn’t. This is rare – think about it — the insurer has data on millions of insureds, so you really have to know your stuff.

            3. You face a loss bigger than what you can handle financially. Homeowners insurance is a great example. It isn’t economically smart to buy homeowners insurance in the sense that you are likely to never get back what you pay in over multiple decades. However, $600/year is worth paying to be be covered for that that one-in-a-million chance that your house actually does burn down.

            Long way of saying that I agree with krhodes, and never personally buy warranties. BUT if I were buying a 12 year old Range Rover and could get a cheap warranty, I’d do it in a heartbeat (see #2 above).

  • avatar
    bunkie

    “It’s a mistake to confuse stock performance with business performance.”

    People who actually make investment decisions need to have this tattooed on the insides of their eyelids.

    It is *especially* true for retail businesses that have huge fixed costs and operate in volatile markets. CarMax certainly fits this description.

  • avatar

    From Automotive News Dec 28, 2015

    CarMax
    When it comes to retail used-vehicle sales, CarMax rules the roost. No other retailer even comes close. It had 153 stores in 77 markets at the end of November and retail sales of a record 582,282 units in its fiscal year ended Feb. 28. In the March 1-Nov. 30 period, its retail used sales rose 7.3 percent from a year earlier.

    How big can it get? CarMax opened two stores this month and plans to add 14 more by Nov. 30, 2016.

  • avatar

    One only has to look back at the dotcom bubble to see that stock performance is no indicator of company health. Eventually you have to make an actual profit to survive.

    And profit isn’t enough. I always look at cash on hand. These days healthy companies make a profit and are holding cash.

    • 0 avatar
      ect

      Stock prices are based on the market’s expectation of future performance, not past.

      This runs up against the reality that investment decisions are made by people, and no human being has a crystal ball that works. Some seem to get it better than others, at east some of the time, but you only get to know in hindsight if an investment decision is a good one or not.

  • avatar
    energetik9

    I would never buy or sell a car at Carmax, but I get why it’s there and have recommended others to check them out.

    I took my wife’s Acura there that was coming off lease. They offered me a price that was $1800 over the Acura end of lease buy out price. I quickly wrote a check to Acura to buy out her car. I then posted in on Auto Trader and sold in a week for another $2000 over the Car Max offer.

    To me it’s like Best Buy. I go there to check merchandise, but I buy/sell somewhere else. Again, I get the business model, but thankfully I didn’t use it.

  • avatar

    The CARMAX verneer is thicker than the average used car dealer and the majority of what you find on the lot is a sucker’s buy, especially the ‘ValueMax’ inventory. I credit their marketing, presentation, and consistancy more than anything that appeals to the person who doesn’t really like cars or shopping for anything outside of a big box store-style environment. It has its appeal and CAF financing for deadbeats with poor credit is a great way to get a late model car with a decent downstroke (I’ve referred several get-me-dones to friends at CARMAX because I don’t have the car or the resources to do what they can) but if you have passable credit or – worse – paying cash, there is no dumber decision you can make as a used car buyer than to default ONLY to CARMAX.

  • avatar
    319583076

    Carmax is like (insert popular chain business here), they serve tons of crap to undiscriminating customers who are apparently satisfied, but they offer nothing compelling to me.

  • avatar
    I've got a Jaaaaag

    CarMaax is great for people like me who like to buy massively depreciated Luxury Cars with high maintenance costs and no factory warranty left. If you are looking for mainstream cars, go elsewhere.

  • avatar
    mattmacklind

    In my experience, as well as those I know who have used it, Carmax has offered a great retail experience. I’m shopping for a vehicle right now, and cross shopping Carmax and used models from a dealer, both certified and not, show little if any difference in advertised retail costs. I suppose a dealer could be negotiated down. Frankly, I don’t care myself.

    It is tiresome to hear car buyers, who presumably buy a car every few years at the most (unlike grocery shopping every weekend) pound their chest because they negotiated the purchase price of a car down a grand or two. Congrats. A lot of people just don’t care as much for that grand or two if it means pitting dealers against each other, dealing with different salespeople, sales managers, banks, whatever, or driving around and looking and test driving the same cars. Call me when you save 50% doing that, then I will listen, otherwise its just ridiculous. Doing that doesn’t make you a winner, it just makes you a different kind of sucker.

    The people who prefer a non-haggle car sales environment are not necessarily suckers. Sometimes they just don’t want to be bothered with haggling when it won’t be productive enough to justify the trouble.

    • 0 avatar
      Coopdeville

      There’s no room here for your calm, reasoned analysis. All Carmax buyers are suckers who paid too much, and we all know the only way to Win At Life is to Not Pay Too Much. I think there’s a test at the end or something. Maybe it’s on St. Peter’s checklist at the gates? I’m still trying to work that one out.

      Hopefully I figure it out soon, so I can have more money left over when I die than my peers.

      • 0 avatar
        319583076

        Wow, your career in “financial services” must be really taking off.

        • 0 avatar
          bunkie

          The single most valuable commodity I have is my time. Wasting it to save a few bucks is a bad deal.

          My wife and I recently needed to dispose of a car. It was 1200 miles from where we live and, despite being a true creampuff (2103 Civic Coupe with 3500 miles), the most cost-effective solution was to sell it to the local Honda dealer. We got the deal done in about an hour on a weekend trip. Not having to deal with the public via private sale was, in my opinion, worth far more than the extra $2K we might have received for it.

          I understand the appeal of CarMax. From a business perspective, they have some advantages (buying leverage, a fair amount f working capital) but they also represent a fair amount of risk (changing consumer tastes, warranty exposure, working capital requirements, brick-and-mortar costs, etc.)

          • 0 avatar
            PeriSoft

            “despite being a true creampuff (2103 Civic Coupe with 3500 miles)”

            Man, I thought they stopped making Civics after the Ape Wars of 2099.

        • 0 avatar
          Coopdeville

          319, don’t make the assumption that all financial services careers involve directing other people how to wisely spend or not spend their money. And Bunkie is spot on about the value of time.

          Some of the most successful people I’ve met could care less about saving an additional $500 if it meant another 2 hours worth of shopping, much less another day’s worth. That time would be well spent towards shaking hands on a much bigger deal.

          My comment was mostly tongue-in-cheek, but honestly I get a little tired of all the “I saved the most!” chest thumping. Very few of the guys I know bragging about the best price on their latest (insert unnecessary purchase here) would then go and immediately plunk that money into some type of savings, much less an actual (gasp!) investment. Usually it’s just useless bragging before they go and add a 4th HD to stare at while drinking beer in their garage. But maybe that says more about me that I would know more of these people than the other kind.

          • 0 avatar
            bunkie

            I work in financial services. What I’ve taken away from that is that a fair percentage of our society’s ills stem from the irrational desire to squeeze every possible penny from a transaction.

            What is the definition of a good deal? In my opinion, it’s where both sides are satisfied.

            Back in 2007, we were selling a house. This was on the tail end of the boom. We had seen a very nice increase in market value. The real estate agent wanted us to list at a price that was 15% above what I thought we could comfortably get for the house within the desired time frame. My wife liked this idea. I bit my tongue and went along. We spent six months hosting tire-kickers and having our lives driven by the need to leave the house spotless at all times. After that, we changed agents, listed at the price that I had in mind all along and sold in three days for our asking price. In the end, we got less than nothing for the attempt to get the “best” price.

          • 0 avatar
            baconator

            Yup, this. My wife tells me she’s finally ready for a new car, and wants a GTI. The message board crowd seems to be haggling dealers down to 10-20% off MSRP on them, well below invoice. I negotiate for a living, so I really want to get the *best* deal…but if I spend 6 hours in a dealership playing the bull**** game with the sales drone and F&I manager, I’m sure it will cost me thousands of dollars in lost work – not worth it for another $2k off, in money that we’ll be borrowing at 0% anyway. Frankly I’d much rather be at the office anyway.

            There are four VW dealers in our area. The first one to give me a purchase contract for >15% off MSRP via email, without a dealer visit, is going to get the sale. I’m hoping that the guys I bought my *last* VW from take me seriously. And yet, I suspect they still want multiple rounds of contentious negotiation to get to the number that Truecar, VW Vortex, etc. all say is the clearing price.

            The dealership model is completely broken – these guys stand in the way of their own sales.

          • 0 avatar
            joeaverage

            Old topic but whatever. Back in ’99 we spent several weekends trying to get a fair price on a car we wanted. We witnessed lies, schemes and more lies. All to get several thousand dollars off of the first dealer’s quoted price. He also quoted credit card type interest.

            We finally found the right price with financing from our bank and bought what we wanted.

            This time around I’ll be damned if I’m going to battle with a bunch of out of town dealers to get the absolute best price. They’ll do nothing but waste my time and patience. None that had to car we wanted this time would deal over the phone or email and their CPO price was ~$5K over Carmax’s warrantied vehicle price.

            They had two examples with the right options in the city nearest us. Car #1 was a solid ‘A’ and the second car was an ‘A+’. We bought it.

            It was spot on at the NADA recommended price.

            Took less than two hours all together. Maybe an hour to drive it, and look it over. A return trip the following evening with a cashier’s check and we were done in under an hour again. One contengency was I wanted it on the CarMax lift so I could look it over from below. It was A+ down there too.

            The car, well the SUV, has been wonderful. No surprises after the purchase. I’ve added several dealer accessories (purchased via the web from an online dealer for a competitive price).

    • 0 avatar
      George B

      Mattmacklind, the problem I have had with Carmax is that I could always find a better price, making their no-haggle policy a non-starter. Saving “a grand or two” is easily worth several hours of my time. Negotiating the price of a car isn’t that difficult or time consuming if you start by looking at Edmunds and Kelly Blue Book to figure out what is a fair price range. After determining market price range, you have to decide if the seller and you can come to an agreement or not. If not, you walk away before wasting much time. If you’re fairly close, the actual negotiating can be done quickly.

  • avatar
    SCE to AUX

    TTAC is that you can’t expect to get the best purchase price on a car which also provided the best trade-in value to its previous owner. One, or both, of you is getting burned.

    This is especially true given CarMax’s overhead.

    You’d be better off to scour tiny used car lots in search of a gem with a low sales price.

    Also, I recently learned that CarMax does reduce prices occasionally. This is happening lately on their stock of off-lease EVs, which are currently priced way above market.

  • avatar
    sparc

    @Steven

    If you look closely at Doug’s articles, he never really champions buying cars at CarMax or extended warranties.

    He’s only championing the purchasing of highly unreliable vehicles like the Range Rover and getting an extended warranty. That’s a very specific narrow set of guidelines which he mentions regularly. He even says now that CarMax jacked up all the prices of their extended warranty for Range Rovers so it’s not even all that worthwhile anymore.

    It’s not like Doug is going to run out and buy a Toyota Camry with an extended warranty.

  • avatar
    RideHeight

    I’ll gleefully pick a dump (amazing what you find!) than ever again buy a used car. Why would anyone do that except under duress?

    • 0 avatar
      CoreyDL

      Because sometimes it’s nice to get something which was $55,000 and has been lightly used, and pay $20,000 – than to pay $20,000 for something new which is relatively awful and much lower in utility and quality than the used thing.

      Also, they tend to stop making things after 5-7 years, so sometimes you have to go old to get what you want.

      • 0 avatar
        RideHeight

        But I’d worry so much! I know what happens to old cars where the sun don’t shine!

        • 0 avatar
          CoreyDL

          That’s why (if you worry) you have a mechanic look em over before you buy, or get a CPO one. But modern cars (even relatively speaking) hold up better than you think with some care over their lives.

          And you save so_much_money. I’ve never in life had a car payment.

    • 0 avatar
      George B

      RideHeight, are you joking? The reason to buy a used car is because the used car at a lower price is a better value to that consumer. For example, buying a well-worn car as a winter beater to protect your good car from road salt. Other examples are getting a used car for a new teenage driver, an old pickup truck for work that would tear up a new truck, and a formerly expensive luxury car as a hobby car. I might agree that some late model used cars don’t depreciate enough to represent a good value, but my used car shopping is more limited by parking spaces and time than availability of desirable used cars for sale.

    • 0 avatar
      Dave M.

      I drive my cars 10-13 years and 200k miles, so my daily driver is usually Japanese and purchased new. My play cars (every 7 years or so) are always used. Why take the massive depreciation hit for a part-time ride?

      My wife likes a new car every 5-6 years. We just bought a certified 2015 with 15k miles on it for $9000 off msrp. And as mini-me heads towards driver-land, her first car will be reliably used.

      Used cars have their purpose.

      I bought my Saab Aero convertible from Carmax. Not only were they able to locate exactly what I wanted in the color and equipment in a rare car for this part of the country, but the extended warranty paid for itself twice over. Car ax serves a purpose as well.

      But no, I wouldn’t send someone there looking for a Camry unless they had only 60 minutes to buy a car.

  • avatar
    tylermattikow

    Can we get a setting in the dashboard to filter out Doug?

  • avatar
    87 Morgan

    I think you could compare CarMax to something similar to Chilis restaurant. Many people think it is a good value. When in reality they serve re-heated frozen food sourced from who knows where from the lowest cost provider. It is a terrible value from a quality of product standpoint but the presentation is consistent.
    Not everyone knows what a quality meal looks like or how to prepare it for that matter.

    Not everyone knows how to shop for a used car, or what a quality used car looks like.
    CarMax provides the same answer for used cars Chili’s does for people who dont know what good food is.

    • 0 avatar
      mattmacklind

      Being a food industry veteran, I have to disagree. The main reason is Carmax, unlike reheat restaurant chains, doesn’t have a hand in producing their own product, even just reheating it. They are selling the same used cars, bought from people or from wholesale auctions, that any other used car dealer is selling. My experience has been the cars on the Carmax lot are certainly at least the aesthetic equivalent of the same cars elsewhere. How is it that they are a poor quality pre-owned car? Because the retired ball player with a car lot isn’t selling it as a trade in? Because Carmax competitively bid on them at auction and didn’t just buy the whole damn sale? Many have less than 10K miles and have had one owner. Can you explain this part?

      Also, forgot to say. I test drove 2 cars at a Carmax over the holiday weekend. In the parking lot of the service area there was a Range Rover. The suspension had failed. I commented to the salesman I was with about it, and he says no matter what he does, he can’t keep people from buying them. Sometimes they have to jump them for the test drive. Too much.

    • 0 avatar
      CoreyDL

      Chili’s and Olive Garden are both terrible.

      At Chili’s, everything has red peppers and cajun on it.
      At Olive Garden, everything has tomatoes and garlic on it.

      Neither place is an accurate representation of either a good meal or a good restaurant.

      • 0 avatar
        RideHeight

        Gimmee Perkins. Better food and I’m often one of the youngest dining there.

        • 0 avatar
          CoreyDL

          Those are few and far between here in Ohio. They’ve gone the way of Ponderosa.

          • 0 avatar
            Coopdeville

            Hard to beat Perkins’ pancakes, although The Pancake House does a pretty good job of it, if you can get a table without waiting 45 minutes. Also highly recommend The Breakfast Club Cafe in Lebanon, because family owned and also because they give you enough food to feed the family next to you.

            Corey your comment had me looking up Perkins (Perkini?), because somehow I’ve always lived less than 10 minutes away from one. I’ve never known how good I’ve had it, apparently.

          • 0 avatar
            CoreyDL

            I think I have been to Lebanon once (looked at a Mountaineer there) but I do like a good breakfast as long as it’s for lunch or dinner.

            I want to try the Original Pancake House in Montgomery after seeing their amazing reviews.

          • 0 avatar

            There’s a Perkins in Hamilton Avenue, right by Ronald Reagan. Damn. I might go there in the morning.

          • 0 avatar
            CoreyDL

            Bark what are you doin in Finneytown? There’s a Perkins in Sharonville just three minutes or so away from me – never been to it.

            Cincinnati locations:
            Perkins = 5
            Ponderosa = 2

        • 0 avatar
          28-Cars-Later

          Mmmmm Perkins.

          • 0 avatar
            CoreyDL

            I think the last time I went to one was about age 12, and it was in northern Kentucky. It’s closed now, I think it’s a White Castle.

            But maybe I need to go to one again.

      • 0 avatar
        krhodes1

        Here’s the thing though – the food my be mediocre, but it is consistent. I travel 150 days a year. After a long day the last thing I want to do is think very hard about food. And I don’t want surprises – that local place could be great, or it could be a literal sh!tstorm the next day. Which is sooo much fun on an airplane. So I am very boring in my choice of restaurants. Olive Garden isn’t great, but how badly can you screw up chicken parm and a salad? I had worse food than theirs in Italy last summer. And much, much better too, of course.

        Nobody will ever accuse me of being a foodie, though I am certainly a car snob.

        • 0 avatar
          CoreyDL

          I shall now associate you with Olive Garden in addition to BMW!

          • 0 avatar
            krhodes1

            LOL – OG is by no means a favorite, just I would rather place a bet on a known quantity of mediocrity than take a chance on something that might be great but just as likely might be terrible. I have a fantastic little local Italian joint in my town that is far better. But I have also spent way too many nights in towns where the only restaurant is home cooking from someone who can’t cook!

      • 0 avatar
        56BelAire

        ALL….all….all chain restaurants are terrible.

  • avatar
    sportyaccordy

    Wow. TTAC’s B&B wastes no time in playing the smug know it all cliche card. Indeed, some people prefer a simple no haggle big box shopping experience, just as others prefer to buy new, and apparently some prefer to sit on a high horse all day and gripe about how stupid everyone who doesn’t share their preferences and experiences is.

    I agree that Carmax business model is a little wonky. That Yahoo article was pretty good. But at the end of the day their existence, or the fact that people shop there, has no bearing on my life. Just seems like a silly thing to seek to levy judgment on others about.

    • 0 avatar
      kvndoom

      Well the prevalent reasoning on this site is “haggle until you pay one dollar over actual dealer cost, then pay cash instead of 0.9% because how dare those evil banks make 500 dollars over the life of a six year loan!”

      In most cases Carmax is indeed overpriced. My favorite Honda dealer is an email away from having a car built for me new that will be cheaper than i could buy it used. I won’t, but that’s another story. But Carmax’ fixed price is often higher than other dealers, and other places will work with you if you are truly interested. Up until around 2 years ago, Carmax inventory used to appear on cars.com search results. It’s not hard to figure why they stopped.

      But the experience is good for casual shoppers. You go into Carmax, all the cars are unlocked, you can walk outside in the lot for hours and not a single lot lizard ever bothers you. You know what you’re going to pay, and there’s no foursquare foolishness or finance lady with giant boobs trying to sell you undercoating. For some, that is worth paying a little more.

      • 0 avatar
        PeriSoft

        “then pay cash instead of 0.9%”

        …even though you could stash your twenty grand in an investment account and make 3% over the same time period!

        Sometimes it costs money to *not* borrow. Shocking, I know.

  • avatar
    Corollaman

    Carmax is great for convincing buyers to go to a new car dealer and just buy the same car they’re selling, but new. Full warranty and the pleasure of driving a brand new car for the first time.

  • avatar
    mchan1

    CarMax wasn’t something special, when I was shopping for a car.
    The prices weren’t that great nor was its financing at the time.

    Sometimes, you can get a decent price at dealer’s lots esp. if it’s a CPO. Otherwise, buyer beware when buying used vehicles.

    I like extended warranties because, like most drivers, I don’t fix my own car. The repairs on used vehicles can be costly, much more than an extended warranty. IF one buys an extended warranty and some repairs are needed, at least you’ll know that the warranty ‘should’ cover it, less a deductible, if applicable.

    Bought an extended twice on an old vehicle, which I no longer have, but the vehicle lasted >10 years. Almost all repairs, excluding wear and tear items, were covered under the warranty!

    Basically, the TOTAL covered repairs paid off the warranties since the TOTAL covered repair costs EXCEEDED BOTH warranty costs! :)

    There’s nothing wrong with warranties but it depends on the person, the vehicle and how long one plans to keep that vehicle.

    For example, IF I was buying a European branded car (i.e. VW), I’d buy an extended warranty since I keep my cars for many years and the poorer reliability history of Euro cars.

  • avatar
    indi500fan

    15 yrs ago my daughter was dating a guy who played D3 football. I actually found it quite enjoyable to watch. Since there are no scholarships, you only get guys who want to be there for the enjoyment of the game. And rather than majoring in basket weaving like many big school players, most are headed for solid careers in the real world.

  • avatar
    JMII

    I off loaded a vehicle on CarMax once. Being able to separate the buying from the selling part made the deal work for me. I was getting low-balled on my trade in and CarMax proved that. Between their warranty, their inventory and generally smooth transactions I think CarMax is a worthwhile option for many. While I agree you are not necessarily getting a “good deal” in pure cash terms the other factors can make up for it. Honestly shopping anywhere but a dealership is a win in my book, so why not use CarMax?

    I could careless about their financial position as a business, I only want them to succeed so they remain an option to buy or sell from in the future. They suffer from the same problem almost every company that sells consumer goods does: supply vs demand. Apparently they are slightly behind the curve right now due to gas prices and SUV inventory, however we all know at some point this will correct itself. And like any investment you need to understand the business plan in both the long and the short term.

    • 0 avatar
      Jeff Weimer

      The nature of the late-model used car business is that they are perpetually 2-4 years behind the new car business, and thus the current car buying desires. Right now they’re in direct opposition, as cars were popular then and SUVs weren’t due to high gas prices. 4 years ago, used cars were so expensive that it made more sense to buy new. Now it’s SUVs. And so it goes.

      This was a predictable (and predicted) consequence of what has been going on in the business the last few years.

  • avatar
    Mathias

    >> and Dave Barry impersonations [..]

    I’m glad I’m not the only one thinking Doug is channeling Mr. Barry.

  • avatar
    danio3834

    So Doug actually talks like that all the time?

  • avatar
    dal20402

    I’m too irrationally focused on Doug’s misspelling of “minuscule” to read the rest, which struck me as pretty predictable as far as I got.

    If you’re an obsessive car nerd, Carmax is not the place for you unless you’re buying an underpriced warranty. If you’re not, the simplicity, good customer service, and lower degree of oiliness may be worth the price premium to you. Or, if you’re cheap, maybe not.

  • avatar

    The big difference between CarMax and Amazon is that Carmax makes consistent profits and has a long history of doing so. That said, Amazon is gong anywhere.

    Carmax is as vulnerable to the vagaries of the pre-owned market as anyone. They have shown remarkable discipline and and understanding for the car business. I admire them. Their auctions are a beautiful thing.

    As with any business, CarMax mak4es strong gross profits. They don’t give stuff away. I especially admire that. They have built a brand.

    While there is no guarantee they will continue their good decisions, I see no reason why they will stop. Their inventory software continues to improve and is the standard of the pre-owned business, having been knocked off by everyone else. The used car business is a mature business, however, and there isn’t an endless string of disruptive innovation available. Vroom just bought Texas Cars Direct and I will be watching how that works out closely.

  • avatar
    whynotaztec

    I just checked out one of their first Massachusetts stores that just opened. Can’t see the cars after hours because the lot is gated. I checked the inventory online, almost 300 cars, but the selection seemed pretty pedestrian. The prices were high too, I mean a 2014 Cruze LS that was more than a brand new 15. Next time I am buying or selling I will check them out however.

  • avatar
    wrxtasy

    Take-aways from the sell-side reports I have seen on KMX:
    1) CarMax has stable gross profit per unit ($2,160 vs $2,172 a year ago)

    I’m going to call this one a negative. While it shows stability it also shows that carmax is NOT driving higher average checks y/y and furthermore it demonstrates that…

    (2)Management attributes part of the 0.8% decline in y/y traffic “to consumers doing more of their homework online before visiting a store.”

    That definitely speaks to the idea that carmax could be overpriced on many mainstream products and consumers could be wising up to it, choosing to do business elsewhere. Combine this with higher interest rates…. and carmax could be in for a rough FY16.

    (3) many analysts models are predicting HSD revenue growth- due mostly in part to NEW STORE ADDITIONS and some maturation of current stores.

    Thats a red flag to me. Failing to squeeze more profits y/y out of stores and relying on new store openings to drive revenue is worrisome at best. Speaks to the first point of KMX failing to find a significantly higher margin.

    Factor in the tight supply of high demand SUVs and crossovers, in addition to the high cost of acquisition for them, and I see KMX as a good short idea in the 12-18 month investment horizon.

    Also, Doug-EPS growth of .03$ is absolutely irrelevant seeing as the company authorized a total of $3.8 BIL for share repurchase in october 2014, with most having been executed already. The EPS growth is a function of simply paying out less shares.

    • 0 avatar

      Good comments here. For those who haven participated in auto retail, it just isn’t possible to expect year over year store increases indefinitely. It just doesn’t happen. A lot of the advanced processes CarMax advanced are now industry standards and almost everyone is doing it, taking away a previous CarMax advantage. I expect any growth to be fueled by expansion, not year over year store growth UNLESS they come up with some new “breakthrough.”

  • avatar
    krhodes1

    I have mixed feelings about CarMax. When I sold my Abarth, they offered me enough to not make it worth my bother to sell it privately. Which was partially timing, to sell it privately I would have had to spend $500 to register it again, which I would have largely lost. I figure I could have gotten $500-$1000 more private sale, but that would have been largely wiped out by the carrying costs. Timing is everything.

    When I sold it to then, I had a friend with me who was in the market for a car. He LOVED the shopping experience – but did not buy from them. I thought the inventory was poorly presented and wildly over-priced. And I am firmly with Steve on the subject of extended warranties, they are a suckers bet, even on Range Rovers. Doug is the sort of idiot who pays the dealer to change a lightbulb.

    But ultimately, every used car is a unique flower. If CarMax has the right car for the right price, I’d have no qualms buying from them. Seems likely you would pay less elsewhere, and I have never had a particularly bad car buying experience anywhere, so I fail to see what the fuss is about either way.

  • avatar
    05lgt

    Steve; debate the labradoodle, you’ll get a better discussion of the issue.

  • avatar
    ChichiriMuyo

    If dog accommodations are supposed to be a thing I’m car dealerships then nothing beats my local Subarus dealer.

  • avatar
    28-Cars-Later

    F*** Carmax. That is all.

    • 0 avatar
      kvndoom

      Kinda how I felt this week. They only offered me 10 grand for the xb (2013, only 26000 miles), which was nothing short of an insult. I used Autotrader’s “sell to a dealer” feature and got 1200 more, which put me within 30 bucks of the payoff, once you figure in the payment i would have made tomorrow if I still had the car. That was easy math. Stage One of getting a new or newer Accord in 2016 is complete.

      Carmax popularized the whole “bring us your car, we’ll cut you a check” movement, but now they seem to really be the worst option for doing just that.

      • 0 avatar

        RE: “Carmax popularized the whole “bring us your car, we’ll cut you a check” movement, but now they seem to really be the worst option for doing just that.”

        Actually, this has been common with dealers in local markets for decades. The stores I ran called every owner of ever vehicle advertised in the classified section of the newspaper or local shopping pubs. I wouldn’t judge CarMax off of an anecdote. CarMax has been agressive in buying inventory direct from consumers. They have made themselves a “mark.” It has become known that CarMax’s buyers aren’t always the most thorough, and its been relatively easy to slide stuff buy them. SO they’ve become more cautious. But not to worry. Consumers now have Beepi to educate.

  • avatar
    kzac

    The truth about Car Max is it will be around as long as Car Dealerships exist. It offers a viable and profitable business model which provides less frustration and aggression when compared to the more traditional vehicle dealerships. The Car Max model survived the financial failure of 2008, so its here to stay (at least for now).

    The problem with dealerships is they don’t understand their potential customers, they chase off more potential customers than they actually ever service. I recently purchased a char at one of our local mom and pop furniture sales establishments. I had initially attempted to purchase that same chair at the big box store at the local mall, where the sales staff told me the chair I was looking for was not available nationally, as they attempted to sell me a 1000.00 chair. The mom and pop shop had the very chair in stock that I wanted, and they allowed us to sit in the chair to verify it met our needs and was what we wanted. We stayed at the mom and pop shop for about 2 hours and finally went home with a chair that met our needs completely and was slightly more expensive than the chair we came to purchase. The bottom line is the mom and pop shop made the sale and I will send anyone I know looking for furniture to their establishment.

    Why didn’t the aggressive furniture dealer sell meet my needs the same way? I had like inventory, it had a larger and better dressed sales staff, it had the location (at the mall), it actually had longer business hours. So what was the difference?

    Sales models in the automotive industry are based on a paradigm which was initiated after WWII when supply verses demand was inverse to its current condition. With middle class America shrinking the sales models of yesteryear don’t fit the needs of today. Expect and even anticipate them changing for the future. The Car Max marketing approach will not be the model that wins out in the end, however is a step in the right direction. Expect the financial institutions to push for more value in the assets they finance, expect the term EUL to come into play for all non-new vehicles sales.

  • avatar

    RE: “Unfortunately, neither of us are impartial. You are a competitor of CarMax’s, and have a financial interest in their failure.”

    No, Mr. Lang is NOT impartial. He prefers to have a quality competitor like CarMax in the marketplace establishing “price cover” rather than a bunch of price whores muddying up the market.

    I once ran the largest Dodge dealership in the Chicago region, which was right around the corner from the largest Chevrolet store in the world. We made a NICE living off their overflow. Competitors of the Ford Auto Collection never wanted that deal to fold up as it provided nice price cover to sell against. I sure don’t think Mr. Lang wants CarMax to fail, but I don’t want to put words in his mouth either, so I’ll wait for his comments. After all, auto retail is about making gross profit in a competitive market, not just selling vehicle. I know that disappoints a lot of people who figure if a dealer is rich enough to get into business in the first place, he is rich enough to be in business for altruistic reasons instead of crass profit motivations. Everyone knows how easy auto retail is, right?

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