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Why CarMax Makes More Money on Used Cars Than Anyone Else
- xivzgrev 8y agoThere'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.
- true_religion 8y agoCar max has a long comprehensive waranty. It may be worth it to someone for ther peace of mind.
- kalleboo 8y agoThe warranty can be a really good value on some used cars https://youtu.be/MzQCj-dbgN0 https://youtu.be/MzQCj-dbgN0
- sjwright 8y agoTLDR: Over $16,000 paid out on a $3,900 six year CarMax warranty.
- bruceb 8y agoWhats weird is he never says exactly what he paid for the Range Rover in the first place. I found a post where he said it was in the 30s. but why not tell that info? Then could compare Car cost + warranty vs private party purchase.
- propogandist 8y agowhy would he? The point of the video is to highlight the value Doug derived from the carmax warranty. He has one for the Aston, which goes into detail on cost of the car etc. https://www.youtube.com/watch?v=hrrFAjxKtj0 https://www.youtube.com/watch?v=hrrFAjxKtj0
- sjg007 8y agoYou pay that warranty on top. And it is good deal for a car that you know will require service. You can find good deals at CarMax. I found a car at CarMax $2k under the dealer. Now maybe I could’ve gotten it cheaper otherwise but I doubt much more.. also you have to realize that used cars are in demand vs new. Today it is often cheaper to buy new.
- bonestamp2 8y agoIf you see a used car at the dealer, definitely negotiate it there too. Look the car up on CarFax and see if they acquired it at auction, then look up the average auction price for that year/model/trim and you'll have a good idea how much room they have to work with. Most dealerships make more money selling a used car than a new car so there's usually a healthy margin for you to take a piece of. Source: my dad runs a dealership and I have negotiated used car prices at other dealerships.
- sjg007 8y agoWhere is a good source of average auction prices?
- chrisseaton 8y agoA lot of people are probably happy to pay the premium to avoid the relative uncertainty, risk and awkwardness of a private sale.
- chaosbutters 8y agoexactly this
- someguydave 8y agoNot only that, CarMax will support you if the car turns out to have problems. Try getting that when you are curbstoning
- pmorici 8y agoI've never bought a car at Carmax but when I was selling my car they offered me a better price than the dealer.
- scarface74 8y agoThe value of buying from CarMax is a level of assurance that I won't be buying a lemon and that I'm doing business with a company with a positive reputation. I'm in my early 40s and I've only had five cars. The first two were from a car dealer who was the father of my best friend, one new one and two from CarMax for myself and my wife. My experiences at CarMax were much better than my one time buying a new car from a dealer that I didn't know personally.
- ghaff 8y agoI've never used CarMax but I'd definitely consider them if I wanted a used vehicle. I'm in a similar situation when it comes to keeping cars a long time. If anything, I tend to keep them for an expensive repair job too long. It does make the car buying experience easier. I know the trade-in isn't worth much and I can always just donate as a fall-back. I also haven't needed to finance for a while. When you can just basically ignore the dealer number BS and go in with a take it or leave it price based on the invoice, the experience may still be annoying but it's not particularly stressful.
- scarface74 8y agoI've never done a trade in. My first car I gave back to my parents, my 2nd one was totaled, and my third one I gave to my son. I've gone to CarMax both times with a preapproved car loan but they have always had a lower interest rate.
- matwood 8y agoOf course there is a markup, but it's better to look at buying, not selling KBB prices. Buying from a private party is usually the cheapest option, but the hardest to get right. Buying used from a regular dealer can be cheaper than Carmax, but you need to do a lot of negotiating and even then, it's typically not that much cheaper.
- scarejunba 8y agoEntire 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 8y agoGross 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?
- Haul4ss 8y agoCarMax 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.
- crb002 8y agoDealers 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.
- koolba 8y agoAlso 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.
- empath75 8y agoIf 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.
- scarface74 8y agoThis 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.
- matwood 8y ago> a standardized but low-balled price for my car I've been amazed at the cars Carmax were willing to buy off of me. I tend to drive cars until the wheels are falling off, so it may be different for cars with more value.
- walrus01 8y agoA 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.
- prisionif 8y agoCarlMarx succeeding in the USA. :-D
- justherefortart 8y agoThey 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!).
- tiredwired 8y agoI had a good experience buying a car from CarMax. Their maintenance and service quotes were extraordinarily high though.
- csours 8y agoAs 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.
- nosequel 8y agoCarmax 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.
- csours 8y agoCompletely agree with user cstejerean here. You didn't say anything about your car, but I will hazard a guess that it was over 10 years old, but still a somewhat rare or desirable vehicle. Carmax doesn't want vehicles over 10 years old. Also, to other commentors here, consider tax implications when you compare sale price on a trade-in. If you wind up paying taxes on the sale of your vehicle, that may offset the increase in price on a private sale.
- jjnoakes 8y agoDon't buyers pay the sales tax?
- csours 8y agoIt appears that I had an incorrect assumption: https://www.dmv.org/articles/income-tax-implications-of-selling-a-used-car/ https://www.dmv.org/articles/income-tax-implications-of-sell... Note that this is not an official DMV site for any government organization
- hellogoodbyeeee 8y agoWhen you buy a used car, you pay sales tax on the purchase price less the value of your trade in. So effectively, you need a private sale offer of at least the sales tax rate higher than the trade in offer to break even. Sales tax wouldn't come in to play if you just sold your car to Car Max though.
- craftyguy 8y ago
- usaphp 8y agoInterestingly 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
- willio58 8y agoThis is how carmax works. They’ll never give you the best offer, just a convenient process.
- usaphp 8y agoI know that, but I expected it at least to beat an official bmw dealer
- gervase 8y agoI 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.
- desireco42 8y agoCarMax 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.
- jhowell 8y agoCarmax 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.
- moronicalox 8y agoOne 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.
- bonestamp2 8y agoThe 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 8y agoCarvana is losing lots of money according to original article. Their model is thus unproven.
- BeetleB 8y ago>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 8y agoYeah. 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?
- hunter2_ 8y agohttps://www.youtube.com/watch?v=vdPy5Ikn7dw#t=1m30s https://www.youtube.com/watch?v=vdPy5Ikn7dw#t=1m30s https://www.youtube.com/watch?v=9OY55Mqs4BI#t=5m40s https://www.youtube.com/watch?v=9OY55Mqs4BI#t=5m40s
- drblast 8y agoThey 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 8y ago>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 8y agoBuying 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.
- mandeepj 8y ago>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
- scottLobster 8y agoWhy do people pay $100+ for Windows/Office when linux/Libreoffice is free? One takes a lot less effort than the other.
- mlthoughts2018 8y agoMy 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.
- squozzer 8y agoWhat 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.