The automotive market continues to fire on all cylinders despite the pandemic as online and offline sales have either remained flat or trending up for Q3. The latest case for its resiliency comes from CarMax, announcing Q3 earnings on Tuesday (Dec 22) that showed solid sales as the company gears up for a push into the digital-first economy.
CarMax’s business model is rooted in the physical dealership model as the company has increasingly leveraged its online channels. By the numbers the company’s net earnings were up 35.9 percent. That was driven by total wholesale units, which increased 10.8 percent, a record third quarter buy rate and what the company called an “enthusiastic customer response to omni-channel experience with majority of customers progressing more of their transaction online.”
On the company’s earnings call, CEO Bill Nash stressed two major points. For one, he issued a warning about soft sales in November and December. The election and the surge in COVID-19 cases tightened occupancy restrictions for its dealerships. As a result, sales trended down in November and for the first two weeks of December, which were down 4 percent compared to 2019. The second point: The omnichannel experience at CarMax has received major investments and will continue to be pushed to consumers in 2021.
“We now have a common platform in place across all of CarMax that leverages our scale, nationwide footprint and infrastructure,” Nash said on the earnings call. “This empowers our customers to buy a vehicle on their terms, whether that’s online, in person or seamless combination of the current platform enables customers to buy vehicle online. Some parts of the transaction, such as appraisals, transfers, appointment and scheduling require assistance from customer experience consultants.”
But not for long. The company took the occasion of its earnings announcement to debut its instant online appraisal program. It had been in beta but will now be rolled out nationwide. It also announced that it will increase its ad spend during the fourth quarter with its branding campaign that will be driven by heavier broadcasting. The campaign focuses on differentiating the CarMax brand and demonstrating its online capabilities.
Nash said on the call that approximately 70 percent of customers were in the dealership. Fifty percent of those chose to advance that transaction or even complete the transaction online. Alternative deliveries including home delivery and curbside pickup accounted for less than 10 percent of sales.
“Our teams continue to execute in a dynamic environment,” Nash told analysts. “Despite the near term market challenges that follow the trajectory of the pandemic our fundamentals remain strong. We have an agile business model that generates a significant amount of cash, and we are in the best position within us car industry to further expand our market share and deliver shareholder value over the longer term. The CarMax experience is about putting the customer in the driver’s seat and providing them with a great service, regardless of how they choose to interact with us.”
The CarMax announcement is indicative of a healthy competitive market that has seen recent initial public offerings (IPOs) from Vroom and Shift. Data released Tuesday by Cars.com showed that its online customers are ready to buy. It showed that 85 percent of Cars.com shoppers plan to purchase a car in the next six months, with 51 percent planning to buy in the next month. Cars.com said shoppers throughout the pandemic are consistently moving up car-purchasing timelines due to COVID-19 concerns, with more than 20 percent of shoppers buying sooner than planned.
“For the many car shoppers looking to buy in the coming weeks, affordability has never been more important,” said Kelsey Mays, Cars.com assistant managing editor. “On Cars.com, 72% of shoppers are looking for a vehicle under $20,000, and end-of-year deals can help shoppers narrow their search and find an affordable vehicle to meet their needs.”
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