Virginia’s CarMax uses new technology for buying cars online

And in 1993, at the store on West Broad Street near Innsbrook in Henrico County that CarMax still operates, Sharp tested the idea in what became the first of 240 stores in almost every state.

Sharp’s idea was anchored in two key ideas: the first, that CarMax would make customers a firm price offer, with no haggling; second, that CarMax’s staff would be unlike any stereotype of the fast-talking used car salesperson Americans had come to expect.

Both are still at the heart of the company’s strategy, even as CarMax moves toward what Nash believes will be the company’s second major shake-up of the used car business. It’s adding digital technology, such as the 360 degree camera in West Broad Street inventory manager Eli Calata’s department that grabs images that can be rotated on a laptop or mobile phone screen of the exterior and interior of vehicles for sale.

Plus the hands-on, people-to-people approach such as Calata’s easygoing chat with new colleague Jhalen Thomas, seeing how he handles final preparation on another vehicle, nodding as Thomas starts the SUV, turns on its wipers and lights, and runs down his list of things to be checked.

“I work side by side with associates,” said Calata, who has risen through the ranks into management after starting as a part-timer in the inventory section, including stints on the team opening a store in Roanoke and training night shift associates in Virginia Beach since joining the company eight years ago.

Now, 30 years after the company’s start at that same West Broad Street store, CarMax has recently rolled out a program so people can go online and get prequalified for a car loan, as they begin what has become the most popular way to browse the company’s inventory: going online.

It’s a key enhancement of what CarMax calls its “omni channel,” which Nash describes as a seamless way for customers to interact online and in person as they shop for a car.

“Say I’m looking at CarMax.com last night and I saw the Suburban I’ve been thinking about,” he said. “I can get prequalified, I can put a hold on one that I like, start an appraisal, book a test drive …

“Today, I come down to the store for my test drive and, while I’m doing that, technicians are checking the condition of my trade-in,” he said. “But when I come back, I see another Suburban that I also like. … I bring the offers home to show my wife in the evening, but she has questions. It’s 9 or 10, but we can talk to a customer service person and get them answered. … It’s being able to go back and forth in a seamless way, that’s what’s changing.”

Technology has come a long way from the days when Nash would take a break from his Circuit City accounting job to wander the CarMax lot and wonder at the wide range of cars on offer — or at what was for the time the cutting-edge technology of touchscreens in the store that could spit out maps showing a customer where to find the car he or she wanted to see.

Nash could not resist; he joined what was still a money-losing venture in 1997, making the jump into an entirely new kind of business, CarMax’s auction side.

It was a kind of business that was not in the original plan, but that CarMax’s firm-offer policy had landed it with, since most people looking for a car have one to trade in — “and some of them were pretty old, pretty high mileage and couldn’t be fixed to meet our standard for sale,” Nash said.

Auctions are still a big part of CarMax’s business. During the fiscal year that ended Feb. 28, while it sold 807,823 used vehicles to its retail customers, it sold another 585,071 — basically trade-ins — at wholesale vehicle auctions.

Nash moved up the ladder at CarMax, including time as executive vice president of human resources and administrative services where he led the company’s efforts to support employees and oversaw the technology, procurement, loss prevention, and construction and facilities departments.

“CarMax gives you the chance to try new things, with all the training and support you need,” he said. “Our people and our values are the key.”

Corey Haire, vice president of regional sales, remembers that from her first days 27 years ago: She was a student aiming to be a teacher and spotted an advertisement for a part-time child care worker — one of CarMax’s pitches was that a staffer would mind the kids while you shopped.

“But you’ve got great people skills,” said the manager interviewing her. “Why not try business operations?”

Plunging into the arcane world of car-buying paperwork was not what she expected, but it was her career for 13 years, rising to a senior management post in Atlanta.

“But my manager then said: ‘Corey, you need to grow, you need to go into sales,’” she said. “To be honest, I wasn’t sure I was ready to get in front of customers.”

Still, she figured she would try — and, if she was going to manage salespeople, she needed to know what it was like on the front line. She asked one of the managers who worked for her to step in and try her hand at Haire’s job while Haire went out on the floor.

That manager — who started as a detailer in a Florida CarMax store, now is one of the eight regional managers who work for Haire.

“You get a lot of feedback here,” she said. And the style may seem unusual to others — CarMax’s approach is two-fold, to highlight something an employee is doing well, and to suggest a small, but achievable, adjustment to something that needs a bit of work.

“Competing dealerships have tried no-haggle pricing and failed because their sales forces are trained to focus on selling vehicles that earn the highest possible gross profit rather than vehicles that customers actually want or need,” Morningstar Research Services analyst David Whiston has written.

“A traditional dealership relies on profits from service to offset the typically lower margins it gets on new vehicle sales. CarMax does not hire salespeople from the auto industry, and salespeople receive the same commission regardless of the vehicle sold. They do not even know the profit on the vehicle sold,” he said.

The result, he said, is “a buying experience that is hard to match at a dealership.”

The past years, though, have been a challenge for everyone in the used car business — and not the easiest for customers, either.

Supply chain challenges — most famously for semiconductor chips — slowed shipments of new cars; inflation led many Americans to decide to hang on to their current cars rather than shop for new ones.

The resulting tight supply of new cars led those drivers who wanted to replace their vehicles to turn to the used car market, where a tight supply was pushing up prices.

For CarMax, which focused on vehicles that were up to 10 years old and in good-enough shape to command prices ranging from $11,000 to $37,000, those higher prices meant it cost more to acquire used cars to sell — in its fiscal 2023, prices generally ranged from $16,000 to $49,000.

And higher prices, of course, discourage buyers. CarMax’s retail sales fell 12.6% to 807,823 and, while its average sales price rose 7.8% to $28,251, it ended up with a 5.7% decline in retail sales revenue to $23 billion.

Its wholesale sales at auctions fell 17.2%, and a 6.9% increase in the average sales price, $9,872, left revenue from this part of its business down 11.4% to just under $6 billion.

Nash said he’s seeing signs that some of the strains are easing.

Meanwhile, CarMax is adjusting by including cars that are a bit older or with modestly higher mileages than it used to, in an effort to offer vehicles that buyers might find more affordable.

The company’s alliances with seven lenders, in addition to its own in-house finance arm, which its new prequalification system taps into, generates competition that can translate into lower monthly payment schedules.

“It’s jump ball; the lenders want to make loans,” Nash said. “In this business, the monthly payment is what people look at.”

A tough market, though, is nothing new, he said.

“We have weathered a number of difficult cycles in our history and, each time, we have successfully managed through them,” he said. “We will come out of this cycle, as we have before, a stronger company with the ability to drive growth in the years ahead.”

In the end, he said, the company’s aim is what it has been for 30 years, ever since Sharp decided there was business to be done with a no-haggling, firm-offer approach to selling used cars.

“Our focus is the customer experience,” Nash said.