CarMax Is Dumping Its New-Car Business That You Probably Didn’t Know About | Autance

Today’s Headlight post is illuminating CarMax quitting new cars. But the company’s hardly shutting down; expect even more used car stores opening soon.

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CarMax Is Dumping Its New-Car Business That You Probably Didn’t Know About | Autance © CarMax Is Dumping Its New-Car Business That You Probably Didn’t Know About | Autance

Did you know CarMax operated new car dealerships? I heard of this for the first time this week — when I learned that the company was in fact selling its last new car dealership to focus solely on used cars. We’ll get into what happened, why it matters, and what it might mean for the near future in today’s Headlight post.

Welcome to Headlight! This is a new Car Autance daily news feature that lights up one current event in the car world and breaks it down by three simple subheadings: What Happened, Why It Matters, and What To Look For Next. We’ll be refining this over the coming weeks, but look for it at around 9:30 a.m. ET every workday.

What Happened

On Monday, Automotive News and other outlets reported that CarMax had sold its last new car dealer (CarMax Kenosha Toyota in Wisconsin) to Rydell Co., which is a huge auto dealer group based in Sioux Falls, South Dakota. I reached out to CarMax’s PR department via phone and email which verified that CarMax sold its Toyota franchise to The Rydell Company on Sept. 30. A spokesperson also clarified that the store would continue to buy and sell used vehicles. Regardless, Automotive News doesn’t screw around; consume its proclamations with confidence.

Why It Matters

In the archipelago of places you can buy a car in America, CarMax is a mighty island (220 retail locations in 41 states, according to the company.) “Record net revenues of $8.0 billion, up 48.7 percent compared with the prior year second quarter,” bragged a recent press release. It’s a titan in the world of used car sales and one that helped pioneer quality assurances and warranties for people looking for something previously owned, but high-quality. All this to say: Anything CarMax does as a business is worth looking at from the perspective of “what might that mean for the auto industry?”

Answering why the company has finally ducked out of the new-car game altogether, a CarMax rep told me this via email:

“CarMax sold its remaining new car franchises to continue to focus on our core business of buying and selling used vehicles. At this point in time, we see greater opportunity with our omni-channel experience where customers can buy or sell a car on their terms – from home, in-store, or a seamless combination of online and in-store experiences.”

Whoa, “omni-channel experience,” that sure sounds… business! [Update: CarMax’s people wanted to clarify that just means people can buy online, in-person, at home, etc… that kind of thing.] Practically speaking, I hypothesize the decision boils down to as simple as “used cars are more profitable than new ones” (they can be bought lower and sold higher). And at this moment in time, there’s an even more pressing business case for focusing on trading used cars instead of new: International computer chip shortages are crippling automotive supply chains worldwide and it’s tough for any company, no matter how large, to get its hands on new-car inventory right now. Our Editorial Director Patrick George laid this all out pretty plainly in a recent post on The Drive: “…Because everyone bought so many Peloton bikes and Nintendo Switches when they were stuck inside last year—and automakers don’t have the components to keep up with demand—there are very few rental cars available, Toyota cut its production forecast for the coming months by 40 percent and General Motors is on track for its worst sales year since 1958.”

On a personal level, I found this story interesting because I actually had no idea CarMax was in the new-car game at all.

CarMax got on the radar of perenially online car dorks like myself (maybe you too?) a few years ago when now-YouTuber then-Jalopnik columnist Doug DeMuro wrote up a viral series about stretching the limits of a used car warranty with a crappy Range Rover. However, it’s been a big deal for a really long time. Despite its blue-and-yellow colorway making it look like a corporate cousin of Best Buy, CarMax was actually a subsidiary of Circuit City until about 20 years ago. Its first stores opened in the ’90s.

What To Look For Next

CarMax has been thinning its group of new-car dealerships for some time now, so the surrendering of this last Wisconsin Toyota store isn’t so much Earth-shattering as it is symbolic of an ending era. And, weirdly eye-opening for myself and a few of my coworkers — none of us realized CarMax was even operating new car spots at all.

With supply chain issues crippling the flow of new cars onto showroom floors and people still clamoring for vehicles, I wouldn’t be terribly surprised if another company (perhaps a big dealer group like Galpin out west or Herb Chambers in the Northeast) tried to get a competitor going in the “it’s a used car dealer but looks and feels like a big box store” space. Or perhaps we’ll start to see more inventory-strapped new car dealers pivot to selling used vehicles in other ways, too.

As far as CarMax goes, its rep sent along a quick line on its expansion plans: “During the second quarter of fiscal 2022, we opened three new locations. In fiscal year 2022, we plan to open a total of 10 new locations.”

From your perspective as a consumer, the takeaway is something you’ve been hearing for the last year and then some: Buying a new car right now is a tough proposition. Don’t get too discouraged if you can’t find a deal or a specification you want, just be patient, consider keeping your current car running longer, or focus on used hardware for your next vehicle. And not to end on an ominous note, but, it’s hard to see the growth of CarMax and corporatization of used car sales as anything but bad news for small single-location dealers slinging reconditioned vehicles. If I were running a little lot right now, I’d be doing everything I can to modernize, get online, and create a good experience for customers to keep them from running to big stores with easy interfaces.

Regardless of where your budget’s at, If you’d like some insight on used car buying and maintenance, you’re already on the right site! Check out our buying and wrenching sections, because knowledge is horsepower.

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