Why CarMax Makes More Money on Used Cars Than Anyone Else • Hacker News Board

Re: Why CarMax Makes More Money on Used Cars Than Anyone Else

#101

Post by valuearb » Mon, Jun 04, 2018, 5:13 AM UTC

scarejunba wrote: post #3

Entire article summarizable under “because people pay more per-unit for service equivalent to elsewhere”: When it comes to gross profit per unit, on average, CarMax raked in $2,147 per vehicle. Lithia Motors wasn’t far behind at $2,038 while other dealer groups such as Asbury, Penske, AutoNation and Sonic had a profit range between $1,565 and $1,090. Startup Carvana only managed to average $902 per unit. But the fact…

Gross profit per unit doesn’t mean they are the most profitable used car retailer, or even that they are profitable at all.

Gross profit in accounting terms means the price the car sold for, minus the fire that cost of purchasing it. It probably doesn’t include sales or marketing costs, and unclear whether it includes Warranty costs. For example, Carvana is listed at making $900 per car, but a Carvana isn’t profitable at all because of those costs.

So I wonder if CarMax’s gross profit might be overstated because it’s driven by a more expensive base warranty?

Re: Why CarMax Makes More Money on Used Cars Than Anyone Else

#102

Post by valuearb » Mon, Jun 04, 2018, 5:14 AM UTC

bonestamp2 wrote: post #43

The article kind of dismisses carvana because their profit per unit is low compared to the rest. But, carvana's model is the future. I don't know what their financials are like, but if they are surviving on $902 profit per unit then they have the potential to surpass carmax and be the walmart of used cars... low profit per unit, but huge volume.

Carvana is losing lots of money according to original article. Their model is thus unproven.

Re: Why CarMax Makes More Money on Used Cars Than Anyone Else

#103

Post by argonaut » Mon, Jun 04, 2018, 6:12 AM UTC

larsiusprime wrote: post #45

nosequel wrote: post #20

Carmax makes a ton of money because they bring new meaning to "low-ball" when they offer to buy your car. Go see what they'll offer you for a car just as a test, then go look up your car value on KBB, edmunds, anything. When I sold my last car, they offered me $2k and I ended up selling it the next week for $7k. Carmax goes after people who are either too lazy to sell it themselves or too desperate and need the money…

This is just anecdata. We bought a used car at Carmax and they gave us way, way, way above bluebook value for our trade-in (and all other offers, too -- and we were pretty aggressive in researching trade-in offers at other places and were prepared to be underballed by Carmax). My anecdata is no more useful than yours. Unless someone provides some actual reliable data points to produce a real, known trend, there's no…

A trade-in is not the same as an actual sale for cash.

If you indeed got a great deal on the trade-in it just meant you got less of a great deal on the other components of the sale.

Re: Why CarMax Makes More Money on Used Cars Than Anyone Else

#104

Post by squozzer » Mon, Jun 04, 2018, 2:21 PM UTC

What I didn't see in the comments is that CarMax has probably the best selection of vehicles in a given area.

To those who know exactly what they want, it doesn't matter as much, but for those who want to compare a RAV4 to a CR-V from the same lot, it's unbeatable.

That said, the recently reported glut in used cars probably negates some of CarMax's advantage. I bought my last car from a curbside dealer.

Re: Why CarMax Makes More Money on Used Cars Than Anyone Else

#105

Post by Fjolsvith » Mon, Jun 04, 2018, 3:41 PM UTC

nitwit005 wrote: post #81

aphextron wrote: post #60

Earlier quoted context omitted.

>The only easier industry to disrupt is probably furniture or mattress sales. I walked into a mattress store recently, and was absolutely horrified. It's very obvious what their tactics are. The sticker price on everything was easily 3x what the cost of a decent bed/mattress should be, to the point it was obvious none of the clientele in there would be paying that full price upfront. They only talk about everything i…

I went to such a store, couldn't believe the prices and number of salesmen. I literally walked across the street and was shown something half the price, and when I asked for something cheaper, they showed me something cheaper. The lesson I learned was to never buy something from a brand you hear constantly on the radio. You'll end up having to pay for all that advertising.

I think this every time I hear Geiko ads.

Re: Why CarMax Makes More Money on Used Cars Than Anyone Else

#106

Post by closeparen » Mon, Jun 04, 2018, 4:03 PM UTC

hunter2_ wrote: post #84

Obi_Juan_Kenobi wrote: post #76

Earlier quoted context omitted.

No haggle, if genuine, means that there's less information asymmetry between buyer and seller. A buyer can look at a variety of places and see real prices, and thus have a gauge of the market. If everything is a negotiation, you'd have to invest considerable time negotiating the 'true' values, or else estimating based on general market knowledge. In either case, the buyer has to work much harder to gather information…

It's true: with haggling, the buyer is at a disadvantage if they don't have the time to gather information. But isn't that like with supermarkets, where the buyer is at a disadvantage if they don't have the time to clip coupons? In both cases, the point is to let people who have more money but less time subsidize people who have more time but less money, so that everyone can obtain the goods even if they don't quite…

Dealers really don't like to give you give you an offer good for more than a few minutes, let alone in writing. Coupon prices are published in a separate venue, but still published.

Re: Why CarMax Makes More Money on Used Cars Than Anyone Else

#107

Post by ouid » Mon, Jun 04, 2018, 4:17 PM UTC

kbutler wrote: post #99

ouid wrote: post #75

Earlier quoted context omitted.

There is no guarantee of market efficiency for single sellers, and while you aren't being explicit about it, I suspect that your belief that people are rational about selling their vehicles rests on a view that this markets efficiently determine price. Forgive me for inferring too much from your statement if I am, but this is exactly the kind of situation in which the zero arbitrage principle doesn't apply. if I make…

I think you're reading way too much into it. I'm basically speaking from personal, anecdotal experience selling (and buying) a few low-end cars via Craigslist and equivalents. I have other things I'd rather do with my time than either handle a bunch of prospective buyers inspecting, test driving, and low-balling my car (and dealing with potential fraud), or myself inspecting, test-driving, and low-balling other peopl…

just because associated costs exist doesn't mean that they are reflected in the offered price. In order for that to be the case you would have to make a zero arbitrage argument, which doesn't apply to markets where sellers simply sell to the first buyer offer.

Re: Why CarMax Makes More Money on Used Cars Than Anyone Else

#108

Post by 2almalki » Mon, Jun 04, 2018, 5:00 PM UTC

rconti wrote: post #82

ouid wrote: post #61

Earlier quoted context omitted.

Your time is worth more than what, exactly? How many hours of work is worth an extra $1000?

I've got a car for sale right now for $31k. It's not listed widely (just an enthusiast forum) and I've had a couple nibbles after about a month, one guy test drove it and seems really interested. I also just changed the oil and am considering changing the differential fluid. I've already put multiple hours into listing, uploading pictures, meeting the guy to test drive, responding to texts, phone calls, etc. Because…

If you don't mind me asking, what car are you trying to sell for 31k?

Re: Why CarMax Makes More Money on Used Cars Than Anyone Else

#109

Post by ryan-c » Mon, Jun 04, 2018, 5:29 PM UTC

mandeepj wrote: post #91

ryan-c wrote: post #80

Earlier quoted context omitted.

Buying a mattress is aggravating, but my experience has been rather different. Maybe I went to different types of stores, I don't know. I did notice that each store/chain seems to sell very similar mattresses that are somehow technically different models so you can't directly compare prices. First mattress I bought had a sticker price of I think $850 plus tax. Ended up haggling and paying $550 cash (tax included) for…

>Second mattress I bought had a sticker price of around $2800. Haggled down to $900 after tax again with a cover included. You have great negotiation skills

My negotiation skills are okay, but mattresses have absurd markups.

Sales guy said $900 was the wholesale price, but I highly doubt that. I'm sure they still made at least a few hundred dollars on the sale. I've heard the wholesale price on a $3000 mattress can be as little as $300.

Re: Why CarMax Makes More Money on Used Cars Than Anyone Else

#110

Post by kbutler » Mon, Jun 04, 2018, 6:45 PM UTC

ouid wrote: post #107

kbutler wrote: post #99

Earlier quoted context omitted.

I think you're reading way too much into it. I'm basically speaking from personal, anecdotal experience selling (and buying) a few low-end cars via Craigslist and equivalents. I have other things I'd rather do with my time than either handle a bunch of prospective buyers inspecting, test driving, and low-balling my car (and dealing with potential fraud), or myself inspecting, test-driving, and low-balling other peopl…

just because associated costs exist doesn't mean that they are reflected in the offered price. In order for that to be the case you would have to make a zero arbitrage argument, which doesn't apply to markets where sellers simply sell to the first buyer offer.

I'm not sure why you keep bringing up selling to the first offer and zero arbitrage.

goatherders and I both described working with multiple buyers, and that finding the right buyer (that is, the one who will pay you $1,000 more than some other buyer) requires time and effort. When considering whether to accept an offer on the table or hold out for a better offer, the seller implicitly or explicitly considers the transaction costs (search, delay, processing, risk, privacy, etc.).

This implies non-zero arbitrage, multiple offers, and market inefficiency.