Case Study: Carmax
CarMax: Changing the Used Car Business
There are a variety of preconceptions and stereotypes about the used-car business in American society. CarMax decided to enter and change the used-car business. In the early 1990’s, many industry analysts were skeptical about the ability of the new kid on the block. By the late 2000s, CarMax had in fact found success, using its own unique formula rather than through intensely competitive, cut-throat tactics. They are winning the game in the used-car industry and they are winning it their way, the CarMax way.[1]
The CarMax way emphasizes ethics in business, no-haggle pricing, and customer service. These are the three pillars of the company’s success. While most used car dealers promise that they do not put structurally damaged cars on their lots, CarMax goes the extra mile in showing that it does not do so. CarMax does not engage in high pressure pricing or haggling. They are up-front about their pricing and explain to customers what is going to happen at every step of the transaction. The low-keyed sales approach was viewed very skeptically in the early years, but it has not led to low profitability. CarMax averages $1,878 in gross profit on each used car, compared with $1,700 in gross profit for new car dealerships that sell used cars. This level of success has led to strong growth, with the number of stores expected to surpass 100 by 2010.
After more than a decade of success, however, CarMax faced a real challenge to its business model during the sharp recent economic downturn. Would the company’s three-way approach be enough to meet the challenges brought about by a weakening economy and slowing auto sales? While US auto manufacturers and retailers experienced sharp declines, CarMax bucked the industry trend by continuing to display solid success.
In early 2009, CarMax was named to Fortune’s “100 Best Companies to Work For” for the fifth straight year.[2] CarMax cited the dedication and innovativeness of its many associates who moved the company forward in the challenging and difficult retail environment of the period. Rather than pulling in during this period, CarMax associates reached out, as for example, participation in the company’s Volunteer Team-Builder Program rose significantly among associates.
In addition to being a great place to work, CarMax invests in its associates and was named in Training magazine’s “Training Top 125.”[3]Each year the magazine names 125 organizations that excel at associate development based on criteria such as training practices, evaluation methods, and outstanding training initiatives. 2009 was the second consecutive year in which CarMax was so honored. In the case of CarMax, the company was cited for three premier training programs: Extensive Sales Training, BASE Camp, and Culture of Integrity Training. During challenging and difficult times, some companies cut investment costs aimed at people development. That can make the company lean, and unfortunately weak. By investing in its associates during challenging times, CarMax aims to be fit and strong for the long run. Strong, competent people meet the challenges of difficult times more effectively and successfully.
Discussion Questions:
- How has change, in the form of economic recession, presented CarMax with an opportunity to establish and solidify its corporate culture?
- What elements of CarMax structure and philosophy described in this case can be considered a part of its informal organization?
- What are some of the long-term risks that CarMax faces because of its investment into training personnel?
- How might CarMax utilize technology in order to expand/proliferate its organizational principles?
[1] L. Llovio, “The CarMax Way: Changing the Used-Car Business,” McClatchy Tribune Business News (June 23, 2008 [Q1]): D12.
[2] “CarMax Named one of the ‘100 Best Companies to Work For’ by Fortune Magazine for the Fifth Straight Year,” Business Wire (January 22, 2009).
[3] “CarMax Named to Training Magazine’s Top 125,” Business Wire (February 12, 2009).