Essay on Carmax Hbr Case Analysis

Words: 1836
Pages: 8

Industry Analysis

Used car market was a huge market with attractive growth opportunities during 1980s. It was estimated worth $ 375 billion market. Competition was so deeply fragmented that no single dealership could claim more than a few percentage points share of the used car market in any locale. New car dealerships were the largest sellers of used cars. 65 % of late model, used vehicles were sold by 21,800 new car dealers through out United States. However most of these new car dealers considered used cars a secondary business. The remaining 35 % was a mix of independent used car dealers and private sales. Between 1985 and 2001, the year over year change in used units sold averaged less than two percent up or down.

…show more content…
CarMax's goal initially was to successfully change the buyer's perception of typical used car salesmen.

CarMax focused on selling late model used cars in three different size stores:

1. Standard format stores, with an average inventory of 300-500 cars.
2. Mega-stores, with an average inventory of 800-1000 cars.
3. Satellite stores, with an average inventory of 250-400 cars.

• Between 1993-1999 CarMax opened six stores, and all of them proved to be profitable at store level.
• Between 1996-1999 CarMax expended the number of stores from 7 to 33, adding a new store almost every month. They were growing very rapidly and hired outside management talents (people who managed big retailer stores) and trained them to manage the CarMax stores.
• In 1996 AutoNation opened its first car superstore and by copying CarMax's business model, they quickly became the biggest direct competitor. They had access to almost unlimited capital and were willing to spend almost any amount to beat CarMax.
• In 1997 CarMax went public but the investors were skeptical about their stocks.
• In 1999 AutoNation went out of business leaving CarMax without a format-to-format competitor.

CarMax's competitive advantage

CarMax's core competency is selling late model, low mileage, high quality used cars. In turning this core competency into a competitive advantage, CarMax started to study what are the