The used car market is seeking stability against ongoing macro headwinds, as seen in the fiscal 2023 fourth-quarter performance of CarMax, the nation’s largest used car dealer, as the effects of inflation and consumer credit delinquencies continue to shadow the sector.
Reporting FY23 Q4 performance on an earnings call Tuesday (April 11), CarMax CEO Bill Nash noted that steps taken in recent quarters to improve the dealer’s omnichannel offerings and digital tools to speed credit decisions and elevate customer experience are paying off.
While pointing to “affordability pressured by broad inflation, climbing interest rates, tightening lending standards and prolonged low consumer confidence” as hindering factors, Nash acknowledged operational efficiencies efforts undertaken, then focused on how CarMax is set on increasing sales by bettering customer experience, from omnichannel shopping to credit.
In terms of the retail consumer shopping experience, Nash told analysts and investors that in Q4 CarMax completed the nationwide rollout of its Finance Based Shopping (FBS) pre-qualification product and grew online retail unit sales from 11% to 14% in the quarter, while omnichannel came in at 52% of retail unit sales, down from 55% a year earlier.
Nash said CarMax Auto Finance (CAF), the FBS pre-qualification product, “gives customers the flexibility to digitally receive quick credit decisions from a majority of our lenders across the entire vehicle inventory. Over 80% of our customers have used this online tool as they begin the credit process.”
He also noted that CarMax is leveraging more data science, automation and artificial intelligence (AI) “to make it even easier for customers to complete key transaction steps on their own and to go back and forth between assisted help and self-progression. These tools will drive online sales and make it easier for customers to opt-in to express pickup,” a delivery option in which customers can complete transactions at a CarMax location “in as little as 30 minutes.”
With those developments as a backdrop, CarMax CFO Enrique Mayor-Mora added that the pace of new store openings is being slowed for FY 2024, with plans to open five new locations including two additional CarMax locations in the New York City metro market, as well as its first off-site production location in the Atlanta metro market. “Our extensive nationwide footprint and logistics network continues to be a competitive advantage for CarMax,” he said.
In terms of consumer credit, Senior Vice President CarMax Auto Finance Jon Daniels said, “While our long-term lending partners continued to complement each other in providing strong credit offers to our customers, we did observe year-over-year tightening as both rising interest rates and delinquencies likely lead to these adjustments.”
Daniels added that the wider rollout of CarMax’s Finance Based Shopping (FBS) experience is resonating with consumers at a time when used car prices remain elevated and consumer financial stability is at a difficult point in the inflationary environment now in its second year.
He added that “what truly makes this product distinct in the used auto industry is our ability to calculate over 6 million unique credit decisions every minute from multiple finance sources, each leveraging their own distinct credit models and then to make these offers digitally available to customers wherever they are shopping in the store at home or walking the lot.”
CarMax has positioned itself firmly as an omnichannel innovator in used car sales to better align with digital shopping behaviors, and Nash noted, “Some highlights from this year that will have a lasting impact across our diversified business model are for retail, we enabled online self-progression capabilities for all our customers.”
“As we evolve our omnichannel experience we’re also updating our operating models to drive efficiency gains in our stores. During the year we launched self-check-in capabilities for appraisal customers, and enhanced e-sign functionality to better enable self-progression.”
Nash added that “our eCommerce engine combined with our unparalleled nationwide physical footprint is a competitive advantage. Our ability to deliver integration across digital and physical transactions is a key differentiator in both the experience we provide and the total addressable market available to us.”
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