It’s Not Complicated

Don’t hate me for thinking CarMax has the best model. As I often say, if I purchased another dealership today I would steal a lot of what they do. They are doing a lot of things we all know to be true and correct. Did you see this recent ARTICLE in Automotive News about CarMax?

The numbers are staggering. They outsold the number 2 seller, Auto Nation, in used cars by 227,107 units. It is not at all unusual for them to be in a market and not only are they number 1, but they outsell the 2nd place dealer by 250 units or more. It’s also not unusual for them to have the top 3 stores in any given market. (Their 2013 report came out in Feb. and they actually sold 447,728 retail units for the 2013 Fiscal year.)

CarMax Numbers A

According to their annual report, they have 117 stores and 4 new car operations, so they focus primarily on used sales. We all get that. Auto Nation, the number 2 seller of used cars, has 170 stores and 210 franchises, so obviously they have different models and are dealing with different issues. It’s much easier to focus on used when you don’t have to worry about generating profits from new, service, parts and body shop operations. But still the numbers are staggering.

CarMax made $460,000,000 last year. Not bad. So what do they do that you don’t do and what can you take away from their operations to make you better? Here are 10 key points that you need to be aware of:

1. They have a controlled environment. You can’t get into the inventory without going through the showroom. “Hey, who’s helping that guy in the red shirt?” You will never hear that statement in a CarMax showroom. How often does it happen at your dealership? Why is it that when you build a new facility or do a re-model you don’t set your ingress and egress up the same way? “It’s not complicated.”

2. They use a greeter-up system. Every customer gets the full routine regardless of what they are there for. If they come in to buy or sell a car they get the full routine. What happens in your store if someone comes in and wants to sell you a car? Odds are the sales person will dump the customer on a manager just as fast as they can so they can go find a real customer. You may not want to do a greeter-up system, but it’s hard to deny that your sales people will do a better job with every customer if they know they aren’t getting another one until all the other sales people have had their turn. “It’s not complicated.”

3. They will buy anything. You will only buy something you can retail. They don’t care what it is. It can be stone junk or a $100,000 sports car. They are building the reputation, “We will buy your car even if you don’t buy ours.” They want to get as many people inside their store at some point so that when they are ready to buy a car they end up at CarMax. At some of their stores, 70% of their traffic comes from people who want to sell them a car. And believe it or not some of your sales people and/or managers are sending your customers over to CarMax to get a figure on their cars. “It’s not complicated.”

4. They hire only green pea sales people. As great as you and I are, we can’t get a job at CarMax. And because they only hire green peas they never have people questioning how things are done. They do it the CarMax way because it’s the only way they know. When it comes time to promote, they have people who know the CarMax culture, the CarMax way. They don’t have to reinvent the wheel every time they promote someone or open a new store. “It’s not complicated.”

5. Their pay plans are based on volume. The sales person is interested in telling the CarMax story. The better they tell the story the more cars they sell. The more cars they sell, the more money they make. Some of the pay plans that new car dealers have almost take a rocket scientist to figure it out. We make it complicated. “It’s not complicated.”

6.They hire part time sales people. A great way to staff up and staff down depending on the time of the week, time of the month, time of the year. Besides the cost savings, they have happier people because they are not standing around during the dead time of the day. Nothing sucks the blood out of enthusiasm like idleness. “It’s not complicated.”

7. 99% of what they put on their lot they retail. Yep retail. Their concept is pretty simple. They have figured a way to ultimately find a retail buyer for their car as opposed to dumping a car when it ages out. Of course they have a timeline to meet, but they retail it, not wholesale it. “It’s not complicated.”

8. They make money on all the stuff they buy and trade that they don’t want to keep for their retail operation. (324,779 units to be exact.) They do that by holding their own internal wholesale auction each week for wholesalers and used car buyers. All that junk that they bring in that you think they paid too much for gets wholesaled to somebody vs. letting Bubba and the gang get. And they make a profit on it. There’s gold in them there hills. “It’s not complicated.”

9. They are a one-price store. Their staff does a great job of explaining one-price to the customer. Do they sell every customer? Of course not. Some people want to negotiate. But, do you sell every customer? Of course not. But the odds are pretty good that their sales staff tells the story better than yours. (Remember they only hire green peas who don’t know any different.) Because they are a one-price store their managers spend time developing people, following processes, vs. working deals. When was the last time you shopped a CarMax store? It should be at the top of your bucket list. “It’s not complicated.”

10. The pricing of their inventory is done at the upper level of management not by those who are buying and trading for the units. When you are doing the buying/trading for cars and you are also responsible for the pricing you become prejudiced in terms of what you will price at. When they price cars they are simply concerned with the law of supply and demand and have no emotional interest in the car. “It’s not complicated.”

And of course it’s not all that complicated for them because they only sell used. Don’t hate me, but they have the best model, that’s all I’m gonna say, Tommy Gibbs

My Processes Aren’t Complicated. That’s Why They Work So Well!