We Expect Sentiment on CarMax Stock to Improve Once Used Vehicle Prices Fall

CarMax's revenue has increased at a compound annual rate of about 11% since fiscal 2000 because of the success of customer-friendly sales practices and use of information technology. The firm targets a 12% annual rate for fiscal 2021 to fiscal 2026. Competing dealerships have tried no-haggle pricing and failed because their salesforces are trained to focus on selling vehicles that earn the highest possible gross profit rather than vehicles that customers actually want or need. A traditional dealership relies on profits from service to offset the lower margins it gets on new-vehicle sales. CarMax does not hire salespeople from the auto industry, and salespeople receive the same commission regardless of the vehicle sold. They do not even know the profit on the vehicle sold. The CarMax customer stays with the same salesperson throughout the transaction rather than being passed off to a finance department, receiving a buying experience that is hard to match at a dealership. This culture of customer satisfaction, combined with scale advantages that allow for a wide inventory selection and extensive pricing data, gives the company a narrow economic moat.