Carmax is down 52%. Their recent earning call transcripts are VERY interesting. I read them, top to bottom, so you don’t have to. Here are the lessons…
Carmax is facing 4 challenges (like all dealers)
1) Interest Rate Increase
2) Inflation
3) Low Consumer Confidence
4) Deep Vehicle Depreciation
Carmax is taking the following actions.
1) Reduce SG&A
2) Start acquiring less expensive vehicles
3) Slow vehicle buying
4) Increase rate on consumer loans
5) Slow pace of tech investments
They cut $17M from the advertising budget.
They are limiting hiring but focused on maintaining service techs.
They plan to open 5 new stores by 2024.
Their major initiative is to shorten transaction time, thereby reducing the associate time per customer. (Improve Efficiency)
They call it “assisted help” and “self-progression”
They’re rolling out an “omnichannel” tool for this experience.
They love their consumer trade-in tool.
Half of the 224,000 consumer-purchased vehicles started with an instant online appraisal.
They average $2,237 GPU.
They are not having a fire sale of depreciating units.
They are doing extensive “price elasticity testing.”
They are not over-paying for their vehicles.
When asked how they see 2023 shaping up, the CEO said,
“Your guess is as good as mine.” (I loved his reply.)
You don’t need to be the CEO of Carmax to realize that macroeconomic factors are negatively impacting affordability for consumers.
Everyone in automotive will have to do more with less.
Carmax is optimizing for efficiency and customer experience.
The takeaway for the auto industry.
Price is one lever, but not only lever.
It’s better to sell less but maintain healthy margins than go right to price slashing.
Consumers are willing to pay a premium when the service level is outstanding.
Order-takers who sold on price will be challenged in 2023.
Jason