Sounds Like an SCO

This sounds a lot like a business intent on delivering Successful Customer Outcomes, and for several years this is exactly what happened:

CarMax uses “Kelley Blue Book Value Estimator” as a resource for potential customers seeking to get an estimate of the trade-in value of their vehicle. Having used this service several years ago, I can personally vouch for the fact that CarMax was very close to my honest use of the estimator (there is subjectivity on rating the condition of a vehicle – and it is necessary to get all of the details correct).

CarMax has “no haggle” prices on the vehicles they sell, which eliminates the whole negotiation process normally encountered. These “no haggle” prices have traditionally remained on the high side of the market but within a reasonable margin that has generally been acceptable to CarMax customers, particularly considered the overall simple and fair experience offered by CarMax.

And Then Came 2006

The CarMax picture for 2006 is much, much different. Having heard rumors on the “grapevine” that CarMax had made some big changes – particularly in the area of buying cars, I decided to check it out myself. Here is what I found.

I took two vehicles in for trade while at one vehicle to purchase. All vehicles were used. To make things fair, I decided to include two traditional dealers in my test with same vehicles (my trades were the same, and I targeted my “purchase” vehicle as a given year, model, and miles with a minimum set of options). I stopped at a traditional dealer first, followed by CarMax, then another traditional dealer. What I found shocked me down to my toes.

CarMax gave the lowest bids on both vehicles and tied one dealer for price on the vehicle to be purchased. This indicated two changes from my CarMax experience several years ago. One the positive side, CarMax was even more competitive on their vehicle pricing for vehicles they are selling. Checking other sources of pricing for the same vehicle validated this. The margin was close though, less than 5% difference.

The trade-in value was the real shocker. Where before CarMax had given me pricing very close to trade-in value as determined by Kelley Blue Book (yes, the Kelley link is still there on the CarMax site) now they came in at 83% and 66% of the Kelley estimate for my two vehicles.

Meanwhile, car dealer number 1 beat the CarMax trade-in prices by 33% and 15% with a 5% higher price on the vehicle for purchase. Dealer number 2 beat CarMax trade-in prices by 100% (double the price) and 31%. Oh, and did I mention they had a lower price on the vehicle for purchase, too?

What Has Changed?

It’s obvious that CarMax has made substantial changes to its business. After this experience, I visited the CarMax website and found several references to “used vehicle wholesale pricing” that improved CarMax’s margin. If they are referring to what I experienced, then yes, they should have improved margin because they are suddenly offering one of the lowest trade-in evaluations to be found.

Of course, financially the company is doing well. Yet I have to wonder if that could now be placed in jeopardy. I remember the slogan well, “the way car buying should be.” I know that my previous experience typified that of an outside-in business that understands and delivers on customer success. Now I perceive an inward-out focused company that understands profit at the expense of the customer, which is the way car buying has (sadly) been historically.

Though I don’t know if this experience is indicative of CarMax on a national basis, or that my speculations on what is behind my recent experience is an accurate analysis, I do know one thing: