KMX Overview

As the nation’s largest used car retailer throughout the entire U.S., CarMax Inc. (KMX) opened their first auto superstore in September 1993 in Richmond, Virginia. The company’s concept was the brainchild of then-CEO Richard Sharp of Circuit City. Also headquartered in Richmond, Circuit City looked for additional concepts for outside sales that lead the research team to propose the used car industry.

While operating as a retailer of used vehicles, CarMax purchases, reconditions, and sells used vehicles, along with providing customers with a wide range of related products and services, including the financing of vehicle purchases through its finance operation, CarMax Auto Finance (CAF), and third-party lenders.

In addition to the previously stated products offered, CarMax also provides other services, including the sale of extended service plans and accessories, the appraisal and purchase of vehicles directly from consumers and vehicle repair services.

Not only does the company specialize in the resale of used autos, CarMax is also engaged in the sale of new vehicles under franchise agreements with four manufacturers, Chrysler LLC, General Motors (GM), Nissan (NSANY) and Toyota (TM). Although this portion of the company is small in comparison to the used car sector, new car sales for CarMax comprised of 4% total sales in fiscal 2008.

With that, nearly 85% of the used vehicles the company sells are 1 to 6 years old with fewer than 60,000 miles. CarMax implements the strictest of quality standards when purchasing cars for resale. Subsequently, CarMax will appraise a consumer’s vehicle and make an offer to buy that vehicle regardless of whether the owner is purchasing a vehicle from CarMax.

CarMax acquires the majority of its retail used vehicle inventory through their in-store appraisal process. However, CarMax also acquires a portion of its used vehicle inventory through wholesale auctions and, to a lesser degree, directly from other sources, including wholesalers, dealers and fleet owners.

The company will also offer a selection of used vehicles at each superstore that are more than six years old or have more than 60,000 miles, if they meet similar quality standards. CarMax also sells vehicles that do not meet its retail standards to licensed dealers through on-site wholesale auctions.

Incorporated in 1996, CarMax currently operates some 100 superstores in more than 40 metropolitan markets with seven new car franchises, which are co-branded with the company’s used car retailers. By the end of the company’s fiscal year, which ended in February 2008, CarMax sold 377,244 used vehicles.

CarMax currently competes within the auto dealership industry with AutoNation Inc. (AN), Penske Automotive Group Inc. (PAG), and privately held Hendrick Automotive Group.

By BetterTrades