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Published byAbraham Strickland Modified over 9 years ago
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2 Forward-Looking Statement This presentation contains forward-looking statements, which are subject to risks and uncertainties. Additional discussion of factors that could cause actual results to differ materially from management’s projections, forecasts, estimates and expectations is contained in the CarMax, Inc. SEC filings.
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3 CarMax Today Used Car Superstores Sacramento Richmond Raleigh Atlanta Nashville Orlando Tampa Miami / Ft. Lauderdale San Antonio Dallas/Fort Worth Houston Los Angeles Baltimore / DC Chicago Charlotte Greensboro 1 1 4 4 1 1 4 2 2 2 1 4 3 1 7 Mid-sized Markets (13) Large Markets (8) 1 Greenville Knoxville 1 Nation’s leading used car specialist Pioneered used car superstore –1993 Operates 44 used car superstores FY03: Sales: $ 4Bn Net profit: $ 95mm Separation Costs: $ 8mm Earnings ex Sep.: $103mm 1 Las Vegas 1 1 Kansas City 1 Birmingham
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4 Unique retail opportunity Provides superior economic returns What Is CarMax?
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5 CarMax Sells More Cars CARMAX 5,210 Public dealers 2,023 Average dealer (NADA) 1,376 Sales/Store (Units) 2002
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6 CarMax Gains Market Share CARMAX + 8% Public dealers - 8% Used Car Comp Unit Sales 2002
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ROIC (%) (2) (1) After-tax EBITR/Average invested capital. Invested capital includes operating leases capitalized at 8x. (2) Auto dealer average includes: ABG, AN, GPI, LAD, SAH and UAG. Source: CarMax calculations based on companies’ public filings, most recent fiscal year. ROIC CarMax Earns Higher Returns (1)
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8 Why Does CarMax Work? Used car focus Consumer-preferred concept Process-driven competitive advantages Organic growth plan
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9 Used Car Focus CARMAX 91% Public new car companies 38% Average new car dealers (NADA) 48% Used Car Mix % (Units)
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10 Why Used Cars? Huge, fragmented business Non-commodity Stable
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11 Used Vehicle Sales Stable Source: Manheim Auctions
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12 Purchasing/ Inventory Management Information Systems Reconditioning Consumer Offer PROPRIETARY OPERATING PROCESS Process-driven Finance Originations Proprietary Operating Process
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13 Marketing CARMAX MARKETING COMPETITIVE ADVANTAGES
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14 CarMax Marketing Competitive Advantages I. What we offer Marketing II. How we offer it
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15 I. The CarMax Offer - Overview Marketing
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16 1. Low, No Haggle Prices I. The CarMax Offer No haggle on price - on trade-in - on financing - on extended service plan Competitive Prices ($500 - $1,000 Below KBB)
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17 2. Great Selection 10x typical dealer All makes and models on one lot - tailored to local area 15,000+ cars available for transfer I. The CarMax Offer
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18 3. Great Quality No flood/frame damage 125+ point inspections and reconditioning 5 day money back guarantee 30 day worry free warranty Extended warranties I. The CarMax Offer
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19 Matching Consumer Needs I. The CarMax Offer
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20 Superior to Competition I. The CarMax Offer
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21 CarMax Marketing Competitive Advantages I. What We offer Marketing II. How We Offer It - Internet Competitive Advantages - Newspaper Competitive Advantages - Television Competitive Advantages
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22 CarMax Primary Competition II. How We Offer It
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23 Internet Competitive Advantages National scale: selection II. How We Offer It Site optimization Consumer Preferred
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24 National Scale: Selection Single national brand II. Internet Competitive Advantages 15,000+ cars Transferable anywhere - Over 4,500 SUV’s - Over 2,300 vehicles under $10K - Over 525 Jeep Grand Cherokees
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25 Ease of Use II. Internet Competitive Advantage
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26 Consumer Preferred Number 1 car site in every market 84% say site is excellent/very good 90% say better than other dealers Second most mentioned car site nationwide! (J.D. Power) II. Internet Competitive Advantage
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27 Newspaper Competitive Advantages Scale: lower costs II. How We Offer It Ad optimization Consumer Preferred
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28 Scale: Lower Costs Purchasing advantage vs. 90% of dealers Consistent ad (3,000 ads - 4 designers) II. Newspaper Competitive Advantages
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29 Optimized for Used Car Shopper II. Newspaper Competitive Advantages Price Quality Selection
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30 Consumer Preferred II. Newspaper Competitive Advantage Non-CarMax markets 190+ competitor ads
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31 Television Competitive Advantages Scale: lower costs II. How We Offer It Ad optimization Consumer Preferred
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32 Scale: Lower Costs Buying scale vs. most (10 - 35%) II. Television Competitive Advantages Ad production economies (20 ads vs. 0-4 ads)
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33 Ad Optimization 350-600 consumers test every ad II. Television Competitive Advantage 2-4 cities Moment to moment reaction
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34 Consumer Preferred II. Television Competitive Advantage
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35 Impact of Marketing Scale II. How We Offer It
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36 Purchasing/ Inventory Management Information Systems Reconditioning Consumer Offer PROPRIETARY OPERATING PROCESS Process-driven Finance Originations Proprietary Operating Process
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37 Purchasing/ Inventory Management Information Systems Reconditioning Consumer Offer PROPRIETARY OPERATING PROCESS Process-driven Finance Originations Proprietary Operating Process
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38 Proprietary Operating Process Competitive Advantage Consistent processes across stores Scalable Hard to replicate – time – re-applied learning
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39 Proprietary Operating Process Why Others Failed Operating processes weak Only copied the sales end Did not fully adopt equities Focused on the visible consumer offer
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40 Purchasing/ Inventory Management Information Systems Reconditioning Consumer Offer PROPRIETARY OPERATING PROCESS Process-driven Finance Originations Consumer Offer
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41 Purchasing/ Inventory Management Information Systems Reconditioning Consumer Offer PROPRIETARY OPERATING PROCESS Process-driven Finance Originations Purchasing / Inventory Management
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42 Purchasing/ Inventory Management Information Systems Reconditioning Consumer Offer PROPRIETARY OPERATING PROCESS Process-driven Finance Originations Reconditioning
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43 Purchasing/ Inventory Management Information Systems Reconditioning Consumer Offer PROPRIETARY OPERATING PROCESS Process-driven Finance Originations Consumer Offer
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44 Purchasing/ Inventory Management Reconditioning Consumer Offer PROPRIETARY OPERATING PROCESS Process-driven Finance Originations Information Systems
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45 Purchasing/ Inventory Management Information Systems Reconditioning Consumer Offer PROPRIETARY OPERATING PROCESS Process-driven Finance Originations Finance Originations
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46 Purchasing/ Inventory Management Information Systems Reconditioning Consumer Offer PROPRIETARY OPERATING PROCESS Process-driven Finance Originations Purchasing / Inventory Management
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47 Purchasing/ Inventory Management Efficient Inventory Management 1 million served 4 million appraisals All transactions captured and analyzed Right car, right place, right price and right time
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48 Purchasing/ Inventory Management People Development Volume buying = great buyers 130 buyers with over 10,000 appraisals Report card = accountability and improvement Difficult to replicate
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49 Purchasing/ Inventory Management Proprietary Pricing Model Sophisticated model Refined over 10 years Store specific Automated and flexible
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50 Purchasing/ Inventory Management We Buy Cars Cash offer on every car We will buy your car even if you don’t buy from us 1/2 of our vehicles are sourced through appraisals
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57 Purchasing/ Inventory Management Information Systems Reconditioning Consumer Offer PROPRIETARY OPERATING PROCESS Process-driven Finance Originations Purchasing / Inventory Management
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58 Auctions: Disposing of Vehicles We Buy Cars The majority of appraisal buys don’t make the cut 125,000 cars/$420 million in sales $3,400 cost, 10 years old, over 100,000 miles
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59 Auctions: Disposing of Vehicles Traditional Disposal Options Wholesale individually Take to off-site auction – Excessive fees – 60% sales rate – 1:6 dealer/car ratio Minimal control, high cost
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60 Auctions: Disposing of Vehicles Carmax Auctions Economic and efficient – No fees – 98% sales rate – 1:2 dealer to car ratio Real-time market feedback Total control
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61 1 Auctions: Disposing of Vehicles
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62 Auctions: Disposing of Vehicles Auction Summary 500,000 vehicles sold Integrated operating system Customer profiles Industry-leading attendance and results
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64 Purchasing/ Inventory Management Information Systems Reconditioning Consumer Offer PROPRIETARY OPERATING PROCESS Process-driven Finance Originations Reconditioning
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65 Service Operations Reconditioning and retail service Reconditioning is majority of work
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66 Service Operations Competitive Advantages 1. Reconditioning treated as manufacturing 2. Centralized production planning 3. People development
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67 Service Operations 1. Reconditioning = Mfg. Engineered process Operating procedures on-line Proprietary custom system – ERO Maximize facility utilization
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68 Service Operations 2. Centralized Production Planning Sophisticated weekly planning algorithm Balances capacity across all stores Minimizes inventories
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69 Service Operations 3. People Development Structured training program Technicians
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73 Purchasing/ Inventory Management Information Systems Reconditioning Consumer Offer PROPRIETARY OPERATING PROCESS Process-driven Finance Originations Consumer Offer
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74 Business Office Complex Transactions An average transaction How traditional dealers do it
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75 Business Office Why That Won’t Work For Us Volume Across states Store growth
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76 Business Office 10 Years Of Process Development Over 4 million transactions 900 forms, 14,000 fees & taxes Integrated systems designed around process
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77 Business Office Competitive Advantage 44 stores, 1 system Seamless transactions across stores Easily leverage workforce for growth
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78 1 Business Office
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79 1 Business Office
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80 1 Business Office
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81 Purchasing/ Inventory Management Information Systems Reconditioning Consumer Offer PROPRIETARY OPERATING PROCESS Process-driven Finance Originations Consumer Offer
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82 Sales Floor Sales Force Over 2000 sales consultants Flat commissions benefit customer Structured advancement program
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83 Sales Floor Simplified Process Online financing Step by step delivery Consistent and easy to learn
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84 Sales Floor Performance Management Systematic feedback Goal oriented Real time information
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96 Purchasing/ Inventory Management Information Systems Reconditioning Consumer Offer PROPRIETARY OPERATING PROCESS Process-driven Finance Originations
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97 Information Systems Two Primary Advantages Process for development Cumulative result of that process
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98 Information Systems Typical Dealer Systems Few alternatives Limited flexibility High cost Functionality does not exist
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99 Information Systems Our Advantage vs. Dealers Started with a blank slate Tuned to the concept Re-applied learning Half the cost Highly flexible
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101 Information Systems Future Direction Layer on the next generation Tuned to the concept Re-applied learning Half the cost Highly flexible
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102 Purchasing/ Inventory Management Information Systems Reconditioning Consumer Offer PROPRIETARY OPERATING PROCESS Process-driven Finance Originations Finance Originations
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103 Consumer Finance Finance Originations Maximize sales Minimize risk Optimize profitability
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104 Consumer Finance Maximizing Sales CarMax consumer offer – Low no-haggle prices – Choice – Customer-friendly process
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105 Maximizing Sales Traditional Negotiations Payment Vehicle price APR and term Trade-in Ancillary products
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106 Process Flow Fast Efficient Technologically advanced Maximizing Sales
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107 Application Routing Prime Non-prime KMX App. Routing Customer Views and Chooses From Among all Offers Transmission Non-prime Prime Decline Prime #2 CAF KMX App. Routing KMX App. Routing KMX App. Routing Maximizing Sales
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108 Maximizing Sales Technology Advantages Connectivity Scale Data collection Point of sale support Accuracy / compliance
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109 Consumer Finance Consumer Benefits Competitive price No negotiation Choice Customer-friendly
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110 Consumer Finance Minimizing Risk Transparent loan originations: - Consumer risk - Vehicle risk - Intermediary risk
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111 Consumer Finance Optimizing Profitability 3rd party finance company selection: - CarMax-specific programs - Stability and scale - Balanced agreement
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112 Consumer Finance Finance Originations Maximize sales Minimize risk Optimize profitability
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113 GROWTH PLAN
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115 Organic Growth Creates value Not acquisition dependent Not 3rd-party constrained Growth Plan
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116 Opportunity Scale Market: $265 Bn Currently: 18%-20% of U.S. Mature stores: 8%-10% market share Growth Plan
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117 Expanding The Opportunity Market share experience Higher-density storing - Charlotte - Orlando - Las Vegas - Richmond Growth Plan
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118 Growth Plan To Date: Growth Plan
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119 Growth Plan: Next 3 Years Growth Plan
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120 Used Car Store Model Growth Plan
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121 Average Store Investment Growth Plan
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122 Investment Returns HistoricalROIC Comparable Standard and Satellites (FY03)18.7% (CAF normalized) Total CarMax (FY03)12.9% Prototypical Standard (Yr 5, CAF normalized)14.9% Satellite (Yr 5, CAF normalized)16.6% Leading Retail Comparison (‘92-’02 Avg.) Home Depot14.6% Wal-Mart12.4% Growth Plan
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123 4-year goal: $8 Bn Comp used-unit growth : 5%-9% New store openings : 15%-20% New store openings Store margin expansion Corporate overhead leverage Sales Growth Profit Growth Growth Plan
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