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Asymmetric information. The buyer has no way of knowing whether the car was used gently, which results in market for lemons. CarMax has no incentive to fail a

• max76 8y ago
  CarMax has incentive to fail cars at inspection before they purchase the car, or to use the inspection results to adjust the price they pay for the car. The price of fixing a car under warranty can be higher than the difference between their purchase price and their sell price.
  • pps43 8y ago
    You also need to multiply the price of fixing a car under warranty by probability of the car breaking before that warranty expires. CarMax only makes money on the cars it sells, so as long as there is a decent chance the car will break after warranty expires, it still might make economical sense to do it.
• smacktoward 8y ago
  CarMax gives you a free history report on the life of the vehicle to date, including how many owners it's had, any accidents it's been involved in, any recalls it's been included in, registered odometer readings over the life of the car, and so forth. (Details here: https://www.carmax.com/articles/free-vehicle-history-report-walk-through https://www.carmax.com/articles/free-vehicle-history-report-...) If you don't trust CarMax to give you an accurate report, you can buy a separate one from a third party like Carfax (https://www.carfax.com/vehicle-history-reports/ https://www.carfax.com/vehicle-history-reports/) to confirm the details. > CarMax has no incentive to fail a car at inspection. They'd rather sell it to you and if it breaks, fix it under warranty. Any car you buy from CarMax can optionally be covered by their "MaxCare" extended warranty, which lets you choose a deductible and then obligates CarMax to pay the remaining cost of any repairs to the vehicle beyond that deductible. So if you set the deductible at, say, $250, and then you get the vehicle home and discover that the transmission is shot, the worst case scenario is you're out $250. CarMax eats the rest of the cost. Car YouTuber Doug DeMuro bought a Range Rover from CarMax with this type of coverage a few years back. He paid $3,899 for the extended warranty, and CarMax ended up paying out $16,925 on warranty repairs over the six years he owned the car. More details here: https://www.youtube.com/watch?v=E3jA55TJboA https://www.youtube.com/watch?v=E3jA55TJboA
  • pps43 8y ago
    If the previous owner only changed oil once (just before trading the car in), how would CarMax or Carfax know?
    • smacktoward 8y ago
      They would know it had missed a bunch of scheduled maintenance. They know how many miles are on the car, they know how many times it should have had its oil changed over that many miles. If the owner never brought it in for service, you can say maybe they were just a gear-head and were changing the oil themselves in their garage. But there's lots of service tasks you can't do in your garage, so if the car missed lots of scheduled maintenance windows, that puts up a big red flag.
      • kbutler 8y ago
        Oil changes often don't get recorded.
      • pps43 8y ago
        Typical lease is three years. In that timeframe there isn't a bunch of scheduled maintenance. You need to pass state inspection a couple of times, but apart from that there's normally nothing really to service yet. From the carfax report the owner who did the oil changes on schedule with quality synthetic oil looks indistinguishable from the one who did nothing and drove the car like a rental. An you can't tell what's inside the engine block until you open it up.
  • amyjess 8y ago
    Would one of those reports tell me if a car has ever been smoked in? I quit five years ago, and ever since then I've been extremely sensitive to cigarette smoke to the point where sitting in a car that people have smoked in before makes me sick.