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Interview Synopsis

Carmax – omnichannel strategy & demand outlook

  • Public Equity
  • Consumer
  • North America

The great car chip shortage that began at the start of the COVID-19 pandemic continues to rumble on, causing demand for cars to far outstrip supply. The steep drop in production has seen the used car market explode over the past two years, with US buyers now paying on average 27.9% more for their motors than a year ago.*

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Supply chain issues continue to inflate used car prices but end is in sight

Sourcing inventory to line forecourts has become a competitive battleground for used car dealers, and one that CarMax is “better positioned than any other” to deal with, a former regional VP at the company told Third Bridge Forum. 

The specialist said the company’s history, brand awareness and acquisition of car shopping website Edmunds last April gives it an advantage in procuring new inventory over its competitors, Carvana, Vroom and Lithia. The company’s “unique” in-house auction also allows it to “buy more inventory than anyone else in the industry”, which the specialist said it can then sell quickly through its retail or wholesale divisions. 

Both divisions have expanded as CarMax has invested more in “strategically” built brick-and-mortar showrooms across the US, enabling it to move vehicles more effectively. However, it has been less active in developing its online offering compared to Carvana, something the specialist attributes to the small percentage of consumers who currently want to buy completely online – a trend they envisage will not change significantly over the next 3-5 years. 

Additionally, the specialist doesn’t expect the current supply issues affecting car production to be resolved anytime soon, claiming it will continue for another 2-3 years – inflating the price of used cars even further. However, once they are resolved, the specialist warns the price of used cars will “dramatically decline” and only dealers that predict this change in real time will continue to be competitive.

To stay competitive, the specialist said CarMax may look to merge with or acquire another company similar to Edmunds, giving it “access to more customers and better technology”. However, they admitted there isn’t one particular company that stands out at present.    

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*CNBC

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