On the used car side of the business, CarMax tends to be the big player within their local markets. They often stock more used vehicles that turn much faster than the average location they compete against.
CarMax also manages not only to optimize turn time but maximize profit per unit sold. In Q4 2017, Used vehicle gross profit per unit was largely consistent at $2,134 versus $2,109 in the prior year period.
CarMax was a pioneer in applying science to used car stocking and pricing. As an example of the company’s continued emphasis on differentiation through harnessing data and insights, here’s an extract from a current CarMax job description for a Manager of Data Science:
“The primary responsibility for the pricing and inventory models team is to accurately value the unique characteristics of each individual car that we buy or sell, and also allocate those vehicles across our 150+ stores…To properly value and allocate these vehicles, our modeling experts must be able to apply statistical methods to develop predictive models that accurately and instantaneously calculate thousands of recommendations for our field associates daily. This requires the combination of a deep understanding of statistics/machine learning/other unique methodologies, the technical skills to apply that knowledge to develop and validate models, the creativity to be able to/the curiosity to want to apply it in a unique way, and the results focus and analytical ability to quickly diagnose and fix data integrity concerns as they arise.”
How many dealerships have the capability and/or budget to hire teams of data scientists to handle pricing and inventory models?
CarMax’s internal inventory management system tracks every vehicle through its lifespan – from purchase through reconditioning and test drives to ultimate sale. Barcodes are placed on each vehicle and on each parking space on the physical lot, and all vehicle bar codes are scanned daily as a loss prevention measure. Test drive information is captured on every vehicle using radio frequency identification devices, linking the specific vehicle and the sales consultant.
The company also captures vast amounts of data on vehicles it wholesales, which helps them create their own internal market pricing tools.
How many dealerships have the size and scale to develop sophisticated data analysis tools internally like CarMax?
CarMax’s proprietary store technology provides its management with real-time information about every aspect of store operations, such as inventory management, pricing, vehicle transfers, wholesale auctions, and sales consultant productivity.
The company’s advanced inventory management systems provide CarMax with the ability to anticipate future inventory needs.
CarMax continues to enhance and evolve its technology competency, which they hold to be a core competitive advantage.
Closing the Gaps: A Case Study
I spent some time with an Acura dealership yesterday analyzing their used car performance vs. their local market. I thought I would share this discussion (masking the identity of the stores) as one example of how a dealer might position their store to compete with industry leaders such as CarMax that have far more data and intelligence resources than the average store.
Comparing Market Share
We started off looking at overall market share for sales and inventory:
Our store had 7% market share of used vehicle sales with 101 units sold over the past 30 days. This put them 6th of 8 stores in their local market.
The local CarMax store, on the other hand, captured 31% of the used car market and 452 used units sold over the same period.
It was clear that the local CarMax store had the dominant market share of used vehicle sales in this dealer’s local market.
Stocking Gaps: Recent Sales
We then took a look at the units the CarMax store was selling quickly compared to what our Acura store was stocking. This immediately identified a number of “sweet spot” vehicles that the CarMax store was selling that our store hadn’t been stocking.
Stocking Gaps: Current Inventory
Finally, we compared the CarMax store’s current inventory to that of our Acura store. This validated some of the same vehicles above and introduced a few other vehicles that we should consider stocking.
Conclusion: Tying it all together
We started off this article with the question How can you compete with CarMax in your local market?
A good answer is to start to think like CarMax, know their operations intimately, and learn everything you can from them. They invest a tremendous amount of intellectual and technology resource to the science behind identifying which vehicles sell best in your local market.
Without an industry-specific competitive intelligence tool providing dealers with updated and easily accessible data on a daily basis, it’s very hard to develop a clear view into competitors’ strategies over time. Knowing your competitors’ direction allows you to modify your strategy to counter theirs—and thereby close the gap to achieve great results.
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