
Why CarMax Makes More Money on Used Cars Than Anyone Else - prostoalex
https://jalopnik.com/heres-why-carmax-makes-more-money-on-used-cars-than-any-1826415410
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drblast
They can make money because used car dealerships are an anachronism run by
sales morons who are hoping to find a bigger fool to siphon money off of.

Interacting with a car dealership feels like you're walking into a poker game
with "sucker" stamped on your forehead.

I recently tried to buy a barely used Lexus from a Lexus dealer and couldn't
believe they used the same bullshit New Jersey Pontiac dealer tactics to sell
me the car that were dated and transparent in 1987.

The only easier industry to disrupt is probably furniture or mattress sales.

~~~
aphextron
>The only easier industry to disrupt is probably furniture or mattress sales.

I walked into a mattress store recently, and was absolutely horrified. It's
very obvious what their tactics are. The sticker price on everything was
easily 3x what the cost of a decent bed/mattress should be, to the point it
was obvious none of the clientele in there would be paying that full price
upfront. They only talk about everything in terms of "monthly payments". It's
very obviously just a scheme to trap poor people who can't just put an $800
mattress on a 0% credit card into making 5 years worth of payments and
interest on something they can't afford.

~~~
ryan-c
Buying a mattress is aggravating, but my experience has been rather different.
Maybe I went to different types of stores, I don't know. I did notice that
each store/chain seems to sell very similar mattresses that are somehow
technically different models so you can't directly compare prices.

First mattress I bought had a sticker price of I think $850 plus tax. Ended up
haggling and paying $550 cash (tax included) for the mattress with a cover
included.

Second mattress I bought had a sticker price of around $2800. Haggled down to
$900 after tax again with a cover included. It was significantly better than
the first one.

Both were queen sized, included delivery and offered haul-off.

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mandeepj
>Second mattress I bought had a sticker price of around $2800. Haggled down to
$900 after tax again with a cover included.

You have great negotiation skills

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ryan-c
My negotiation skills are okay, but mattresses have absurd markups.

Sales guy said $900 was the wholesale price, but I highly doubt that. I'm sure
they still made at least a few hundred dollars on the sale. I've heard the
wholesale price on a $3000 mattress can be as little as $300.

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xivzgrev
There's value in removing negotiations to end consumer. The expectation to
negotiate can introduce stress and uncertainty into an already-stressful large
purchase. CarMax removes that, and captures the value in higher prices.

But it is interesting that more people don't do a quick check of Kelly Blue
Book. For example BMW 328i in article at Carmax is $27k. On KBB selling to
private party value is $21k-$23k. Maybe there are some special features on one
in Carmax inventory but doubtless there is a markup there.

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chrisseaton
A lot of people are probably happy to pay the premium to avoid the relative
uncertainty, risk and awkwardness of a private sale.

~~~
someguydave
Not only that, CarMax will support you if the car turns out to have problems.
Try getting that when you are curbstoning

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nosequel
Carmax makes a ton of money because they bring new meaning to "low-ball" when
they offer to buy your car. Go see what they'll offer you for a car just as a
test, then go look up your car value on KBB, edmunds, anything.

When I sold my last car, they offered me $2k and I ended up selling it the
next week for $7k.

Carmax goes after people who are either too lazy to sell it themselves or too
desperate and need the money immediately.

~~~
larsiusprime
This is just anecdata. We bought a used car at Carmax and they gave us way,
way, way above bluebook value for our trade-in (and all other offers, too --
and we were pretty aggressive in researching trade-in offers at other places
and were prepared to be underballed by Carmax).

My anecdata is no more useful than yours. Unless someone provides some actual
reliable data points to produce a real, known trend, there's no proof here.

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argonaut
A trade-in is not the same as an actual sale for cash.

If you indeed got a great deal on the trade-in it just meant you got less of a
great deal on the other components of the sale.

~~~
fma
As far as I know, CarMax doesn't negotiate on the price. The price they list
is the out the door price. So it's not like OP walked in and they added
document fews and headlight fluid fees. He knew the price he was going to pay
for the CarMax car, and was pleasantly surprised with the trade in value of
his old car.

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walrus01
A lot of people will pay extra to avoid the typical used-car bullshit process,
when buying... Shady dealers where you spend 2.5 hours haggling, encountering
a $295 "documentation fee" you need to threaten to walk away to get removed,
etc.

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empath75
If I go to Carmax I know what I’m getting — a standardized but low-balled
price for my car and no hassle. My time is worth money and the car buying
experience is fucking miserable.

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scarface74
This exactly. When I compare my experiences buying houses and my experience
dealing with car dealerships, I had s much more pleasant experience dealing
with house buying.

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moronicalox
One of the appealing aspects of Carmax for investors is that they're the only
dealership that makes money both on purchases as well as sales. Their appeal
for consumers is that they're friendly and transparent, even if it's not the
best deal.

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scarejunba
Entire article summarizable under “because people pay more per-unit for
service equivalent to elsewhere”:

When it comes to gross profit per unit, on average, CarMax raked in $2,147 per
vehicle. Lithia Motors wasn’t far behind at $2,038 while other dealer groups
such as Asbury, Penske, AutoNation and Sonic had a profit range between $1,565
and $1,090. Startup Carvana only managed to average $902 per unit.

But the fact that CarMax makes is the most profitable used car retailer in the
country, is mostly the direct result of buyers often paying more for cars then
they could have found elsewhere with a similar “no-haggle” experience

~~~
valuearb
Gross profit per unit doesn’t mean they are the most profitable used car
retailer, or even that they are profitable at all.

Gross profit in accounting terms means the price the car sold for, minus the
fire that cost of purchasing it. It probably doesn’t include sales or
marketing costs, and unclear whether it includes Warranty costs. For example,
Carvana is listed at making $900 per car, but a Carvana isn’t profitable at
all because of those costs.

So I wonder if CarMax’s gross profit might be overstated because it’s driven
by a more expensive base warranty?

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BeetleB
>CarMax is an absolute powerhouse when it comes to pre-owned vehicle
retailing.

I never understood the use of the phrase "pre-owned". I know it's short for
"previously owned", but why not say "used"? My brain keeps parsing it as
"before it is owned". And does anyone use this outside of the US/Canada?

The other day I went to an event where the check-in clerk asked "Are you pre-
registered?" I asked "Is that different from being registered?" Turned out it
wasn't different. So why say "pre-registered"?

~~~
drblast
Yeah. And if we're being honest only new cars are "pre-owned."

It's a car before the state of ownership... New.

Pre-registered? It's someone who hasn't resistered yet.

Shouldn't used cars be post-owned?

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bonestamp2
The article kind of dismisses carvana because their profit per unit is low
compared to the rest. But, carvana's model is the future. I don't know what
their financials are like, but if they are surviving on $902 profit per unit
then they have the potential to surpass carmax and be the walmart of used
cars... low profit per unit, but huge volume.

~~~
valuearb
Carvana is losing lots of money according to original article. Their model is
thus unproven.

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desireco42
CarMax is awesome, when you need a new car, you can go there and get one
without too much worry about hidden problems or being overpriced. Markup they
charge, provided they didn't change much in last few years is totally worth
it.

Saving few bucks but risking having a car with problems is not worth it. This
is where CarMax provides most value.

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usaphp
Interestingly couple years ago a BMW dealer offered me $2500 more for trade in
of my 2014 5 series than what Carmax offered. Since then I always try to
double check what other dealers offer

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willio58
This is how carmax works. They’ll never give you the best offer, just a
convenient process.

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gervase
I ended up getting nearly twice as much from CarMax as I was offered from any
dealers. However, I suspect this was because there was a serious problem with
the steering column that CarMax missed in their inspection that the dealers
did not.

Either way, the process was painless enough that I don't think it can hurt
getting an additional valuation.

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squozzer
What I didn't see in the comments is that CarMax has probably the best
selection of vehicles in a given area.

To those who know exactly what they want, it doesn't matter as much, but for
those who want to compare a RAV4 to a CR-V from the same lot, it's unbeatable.

That said, the recently reported glut in used cars probably negates some of
CarMax's advantage. I bought my last car from a curbside dealer.

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Haul4ss
CarMax is not the cheapest option, it never was. Their whole business model is
to sell the car at a good-enough price, and to make the sale frictionless. And
they've succeeded.

Today they are the market leader, but as the article suggests, if they start
to use that leverage to sweeten their markup too much, other competitiors will
come along and offer something better.

This is really just a news article about how a free market works.

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crb002
Dealers lose money every day a car sits on their lot. You want a good deal
from any dealer, scrape results each week and hit them up on cars that haven't
moved for months. They will flip it for $1 over cost just to get it from going
red on their books and management getting upset.

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koolba
Also make a point to go at the end of the month / quarter / year as they'll
want to juice the sales numbers for that particular block.

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jhowell
Carmax is so successful because they emphasize the "why" and not the "how."
Carmax believes buying and selling cars should be easy not cost effective for
consumers. I sold a 2000 Toyota Tacoma with over 100k miles for $20k that I
bought for $24k and drove for 7 years. Thought I got a good deal, literally
took one hour. I just miss the truck.

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scottLobster
Why do people pay $100+ for Windows/Office when linux/Libreoffice is free? One
takes a lot less effort than the other.

~~~
mlthoughts2018
My experience has been that Libreoffice tools are significantly easier to use
than MSFT Office products, and also easier than Google Docs and related Google
enterprise products. It has usually just been the case that a company has many
employees already standardized on Windows machines, and wants enterprise
support contracts.

I'd argue that Libreoffice being harder to administer and provide as a common
tool is due to mistakes made earlier in the decision-making process, when
originally standardizing on Windows or expecting browser-based solutions for
these workflows.

But I agree that conditional on someone already having sunk money into those
mistakes, the marginal extra cost of a turn-key solution for their environment
is what makes the enterprise products attractive.

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tiredwired
I had a good experience buying a car from CarMax. Their maintenance and
service quotes were extraordinarily high though.

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csours
As an aside, the Tom McParland articles are always interesting to me because
he talks directly about auto sales, where if you go to a dealer if feels like
you always get half-truths and the runaround.

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justherefortart
They buy from people in need as well.

I debated on selling them my F150. They offered me 17k and I told them to go
fuck themselves.

It got totaled ~4 years later and I got a bit over $17k.

So the people that need cash will bend over. Those too stupid to shop around
(marketing works as well) will overpay.

Almost everyone I know falls in love with a car or house when they're buying
because it's such a huge purchase. For me I'm only in love if it's a good
deal. That's one thing my parents certainly taught me well (thanks!).

