Carmax Inc's Comment on Supply Chain
We acquire used vehicle inventory directly from consumers through our appraisal
process, as well as through other sources, including local, regional and online
auctions, wholesalers, franchised and independent dealers and fleet owners, such
as leasing companies and rental companies. The supply of late-model used vehicles
is influenced by a variety of factors, including the total number of vehicles
in operation; the rate of new vehicle sales, which in turn generate used-car trade-ins;
and the number of used vehicles sold or remarketed through retail channels, wholesale
transactions and at automotive auctions.
Our used vehicle inventory acquired directly from consumers through our appraisal
process helps provide an inventory of makes and models that reflects the consumer
preferences in each market. We have replaced the traditional “trade-in”
transaction with a process in which a CarMax-trained buyer appraises a customer’s
vehicle and provides the owner with a written, guaranteed offer that is good
for seven days. An appraisal is available to every customer free of charge,
whether or not the customer purchases a vehicle from us. Based on their age,
mileage or condition, fewer than half of the vehicles acquired through this
in-store appraisal process meet our high-quality retail standards. Those vehicles
that do not meet our retail standards are sold to licensed dealers through our
on-site wholesale auctions.
The inventory purchasing function is primarily performed at the store level
and is the responsibility of the buyers, who handle both on-site appraisals
and off-site auction purchases. Our buyers evaluate all used vehicles based
on internal and external auction data and market sales, as well as estimated
reconditioning costs and, for off-site purchases, transportation costs. Our
buyers, in collaboration with our home office staff, utilize the extensive inventory
and sales trend data available through the CarMax information system to decide
which inventory to purchase at off-site auctions. Our inventory and pricing
models help the buyers tailor inventories to the buying preferences at each
superstore, recommend pricing adjustments and optimize inventory turnover to
help maintain gross profit per unit.
Based on consumer acceptance of the in-store appraisal process, our experience
and success in acquiring vehicles from auctions and other sources, and the large
size of the U.S. auction market relative to our needs, we believe that sources
of used vehicles will continue to be sufficient to meet our current and future
needs.
Suppliers for New Vehicles. Our new car operations are governed by the terms
of the sales, service and dealer agreements. Among other things, these agreements
generally impose operating requirements and restrictions, including inventory
levels, working capital, monthly financial reporting, signage and cooperation
with marketing strategies.
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