Carmax Sales Swing, Asking the Real EV Questions, Keeping It Moving

April 13, 2022
This Wednesday we dig into the Carmax Q4 shareholder report…and there is a lot to unpack. We also ask some real questions about EV rollouts and talk through how to prepare to respond. Everything is in a state of motion and we’re going to do what we can to ensure the ASOTU community is a step ahead. 
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Carmax Pre Owned Sales Drops 5.2% in its Fiscal Q4

  1. Sold fewer units citing affordability issues
  2. Sales revenue increased by 33% due to higher average retail price
  3. “Bought approximately 324,000 vehicles from consumers, a 69.0% increase versus the prior year quarter. Approximately 162,000 of these vehicles were purchased through our nationwide online instant appraisal offerings. For the fiscal year, bought approximately 1,412,000 vehicles from consumers, a 95.5% increase versus the prior year, including 707,000 units purchased through our nationwide online instant appraisal offerings.
  4. Total revenue up 49% - Total earnings slipped 28%

Asking the questions about EVs:

  1. What will the margin structure look like? 
  2. What level of additional training will be required
  3. Will sales comp plans bump into each other EV - ICE? 
  4. What are the real opportunities?


Leadership Principle: If you aren’t moving, you’re losing

  1. Everything else is in a state of motion and change
  2. If you are sitting still, you are losing ground


Paul Daly  0:22  

Yo, Happy Wednesday, troublemakers we are rolling into today talking about the used car business talking about EVs in the sales models talking about keeping it moving. Because if you don't move, everyone else catching up, you got to move. If you

Kyle Mountsier  0:37  

I'm feeling 1999 all over the

Paul Daly  0:48  

we were talking right morning, I think just when we first got on, it was like we started this kind of randomly this little it was like wassup were like if you know, you know, right, like you can totally tell the year that you were born, or the period you were born or alive. And if you know what that means wasssup? Let us know in the comments or shoot us an email be like I understand exactly what that is, we're not going to tell you what it is you have to know. Ask us in an email or comment, we will tell you what it is. But there's a lot of stuff going on today specifically, but in this in this time period, a lot of things are converging right now. We should actually the first thing is something we haven't officially announced. But let's officially announce it is that we are having our next live event at Digital Depot doing it. Monday night, May 9, save the date, mark your calendars. The venue is booked the food the drinks are booked. The sponsors are booked. Right? We're about to announce all this stuff, and it's going to be a really good time. And here's a little difference this time first of all, the swag experience is gonna be dope. Yeah, really fun. Really. Last year, at this event, we did the hats, the flat brims and everybody signed them, I think we're gonna bring mine, I'm gonna get like a little glass case to just it's it really is still my prized possession. It's

Kyle Mountsier  2:03  

that'd be so smart. This time.

Paul Daly  2:04  

We're gonna ratchet it up. Should we just talk about it?

Kyle Mountsier  2:07  

We're gonna have a lot of fun with it. This is a we'll give you a little precursor. And we'll say this, that how many events do you go to? That you get a swag bag, and you're like, I didn't want even half of this.

Paul Daly  2:20  

everyone. You're like, oh, every single, right, thanks for the sales card. I'm going to make sure that doesn't make it back home. We're gonna make sure that stays in the hotel room when I leave. Yeah,

Kyle Mountsier  2:31  

exactly, exactly. Not this time.

Paul Daly  2:35  

We don't say that way. We don't play that way.

Kyle Mountsier  2:38  

got one more thing before we get rockin before we get back and check this out. So a buddy sent sent a little card, and it'll poker chip. But this is what's really cool. It's a little poker chip for that they had nada, and then a card. And it's handwritten. But it you know, one of the lines in it is just I can't begin to express my gratitude for you and Paul and the whole asotu team, something special you are doing. And it was it's really cool. Because here's, here's what's interesting about this, like, this person is in the in the tech side of the industry. And and, you know, is not a sponsor of asotu we don't do business like Not, not out there referring things never have like, brought it into a dealership and yet saw fit to and also talk about like congrats on my baby girl, like, reach out. And that's why I love our industry so much. It's that it really does feel we've talked about this so many times. It really does feel like family. And so yeah, to the person who's listening or watching that knows who they are. Thank you for this handwritten note, and something that I wish I could have gotten at nada, but wasn't able to be there. And so I just wanted to shout out that. I know that so many people in our industry do that with like, expecting nothing back. And, and so thank you to our industry, because I've gotten a lot of that we've gotten a lot of that and it doesn't go on notice.

Paul Daly  4:06  

And that's so great. Well, there's gonna be more of that. On May 9, yes. Family Reunion, right? That is where I love the fact that people are connected that have nothing to do with the monetization model or anything like that. Well, this is I was listening to the Seth Godin podcast it's called a Kimbo Aki MBO this morning and he was talking about companies and he was talking about capitalism but saying like people that do things because there's a passionate community around it and they want to cultivate that before they're trying to like make money he said, Steve Jobs almost ran Apple round twice, because he was focused on beauty right and doing things because they're beautiful and meaningful. And you know, did did the phone have to have less corners and like they paid you know, Johnny, Ive and all these people millions of dollars to make it beautiful. And the intention, the stock price didn't reflect that for a really, really, really long Time, right? So I feel like asotu when he was listening to that I was vibing with it because it was like, Man, I feel like asotu like we exist. And we do things, because it's beautiful. And it's important. And there are other people that feel the same way. And we've had probably at this point, maybe not hundreds yet, but people that have said, you let me know that there were other people out there that think the way I think and care the way I care, and big like monetization and all that. All of that value comes after we figure out why we're doing what we're doing together. And we just do it because we don't have time to sit around. And like, like, Let's build a business. Yeah, we got to unleash this energy in the industry.

Kyle Mountsier  5:40  

Yep, exactly. And, yeah, I think that, like, if you if you have never come to one of our events, you might just want to come to digital dealer only for Monday night, because

Paul Daly  5:51  

the last time people literally drove in from Monday night. Exactly.

Kyle Mountsier  5:55  

Because the spirit of the people in the community is so strong and so resilient and excited about what our industry can be, and just being around other people that feel and think the same way can energize you for months, I believe. So

Paul Daly  6:12  

yeah. So a lot of announcements coming, what we're going to be doing, who's gonna be there, Mark, the date mark, march 9, we're trying something new this year dealer tickets, we're actually going to be paying for all the dealers to come. So dealers don't have to pay a dime. We'll let you know how that's working out. And also, vendor tickets, we're going to keep them real reasonable. But you're gonna get all the value back in swags in food and drink. So our goal is that like the money you spend to get in your life, that was the best money I've spent on this entire trip. So more weren't enough talking about that. So we have actually specifics to tell you. But there you go. It's coming in hot market right now. March. I'm sorry, March, May 9, Monday night, market calendar, make sure you are there, we'll be there. The whole crew crushing it is going to be a lot of fun. Let's talk about some news. Talks about some news. So Carmax Carmax annual share or quarterly shareholder report. I love I love watching these things. I love reading these things like Carmax is when Carvanha is all the public's because they basically give you an insight into their business. And they give you their strategy moving forward. So I'm get this so they're pre owned Carmax in their fiscal q4 ends at the end of February. So they're just reporting on it now. So their q4 they sold fewer units. So their sales, pre owned sales numbers and units sold dropped 5.2% however, their sales revenue increased by 33%. You know, I sold 5% Less vehicles and I invoiced or billed 33% more dollars.

Kyle Mountsier  7:43  

Most dealers be like, yep, yep, we know that. We know that game. Absolutely. Right. So I mean, I don't think it's a shocker to anyone in the industry. It might be outside of the industry, people are like a rookie. Right. But I think inside the industry, we've kind of, we've kind of been, we've been playing that game for a hot minute. So yeah,

Paul Daly  8:04  

well, here's the thing. So this I mean, what I like about the Carmex thing is very retail facing, right, because it's publicly traded, because they're just a used car dealer. So this is I'm reading this from the release, they said they bought will actually I want to get to this in a second. So the affordability issue is yes, not only present, but it has rocketed to the front seat. I think in the last 30 days, I I'm sorry for some noise or doing some construction around me. So if you hear a random screw gun drill, it's down. So I'm gonna stop trying to keep muting it out. You know, I think the average price of a vehicle was up $8,000 to just under 30,000. Like this is a real thing. Now people are staying out of market because

Kyle Mountsier  8:49  

of it. Yeah, I mean, over 2019 You're you're talking about $200 A month in payment is what most sources are saying between new and used cars is the average payment increase. And the number of 72 month loans going out is at an all time record high. So you just think about like what people are having to do to get things close to the budget. Now there is increased cash on hand there is increased, you know, down payment, money and trade trade values are keeping up with retail value. So we're not seeing the like massive inequity because of this yet, yet, but I think that you know, the reality that people are walking into payments that two years ago, they never even thought of paying and having to be willing or needing to pay that. I actually this is crazy. I heard a story of a couple of do a couple days ago, in a dealership, there was a three way fight over an A chord. And someone was was telling the dealer I will pay $5,000 More than those other two people whatever their highest offer is to get that car, like this is a real story happening in the dealership. So, like market? I don't know it's not it's a northern market. It's a northern. Okay, so we'll go with that.

Paul Daly  10:14  

It's crazy, regardless of what market regardless of the market, it's crazy. Yes, I found is it's well, you know, so

Kyle Mountsier  10:21  

my acord heard acord yall. I mean, nothing against Honda but it's not like we're not talking about a Mercedes or,

Paul Daly  10:30  

you know, miles of the gallon in that sucker.

Kyle Mountsier  10:34  

Like I'm making and right now I'm gonna make that up in a year

Paul Daly  10:40  

or something without a doubt. I mean, no, this is I mean, the inflationary just mentality that we're in, you know, the reports coming out yesterday, were another 5.8%. Like we're inflation is just really peaking feeling it in every area, automotive obviously, you couple that with supply shortages. My wife and I took took a day and we'd had a little trip came back. My mother in law was with the kids. She was like, We got pizza last night. And it was $53 for one pizza, a dozen wings and this crappy salad. And I looked at the invoice I'm like, yeah, it's getting expensive. And 10 actually wasn't even a dozen wings. 10 wings 1599 Every wing is $1.60. Remember, 25 cent wings 50 cent wings? Oh, yeah, dollar wings is gonna be a big deal. And so like, it's the maybe it's the chicken wing indicator. But there's a shortage of chicken wings to all that to say like, oh my gosh, like the the nature of us needing to move and pivot is more and more. And you know this already, let me read this because I think this next line from the, from the shareholder meeting really sums up a lot of where a lot of people's focus is going and I think needs to continue to be so they said they bought approximately 324,000 vehicles from consumers. This is a 69% increase over the prior years quarter. So like year, over year, they bought almost 70% more vehicles from consumers 162,009 were purchased through our nationwide online instant appraisal offerings. For the fiscal year 1.4. Millions were bought a 1.1 point 4 million vehicles were bought from consumers, which is a 95.5% increase over the prior year. So let's be let's be honest, acquisition is everything they've

Kyle Mountsier  12:29  

got so much to say about this. But acquisition is everything. Absolutely. And you need to be like dealers that aren't paying attention to having some sort of acquisition strategy in the service lane and direct from consumer are missing out on a massive opportunity, because we think about this right is they were able to increase basically 70% year over year in consumer purchases. So those vehicles, were going to do one of two things. Either they were going to get purchased by a private party, or a dealer or them right. So they were just going to be direct sales, or they were going to be traded somewhere. But because of the ease of transaction, they maybe they went to Carvana. And because the advertising strategy, but here's here's the real where the rubber meets the road here, and where like Don't get afraid of this as a retail dealer and look at where the opportunity is. Think about this. If you divide that, and I'm going to all 50 states, but if you divide 324,000 by the quarter, which is three months, you're looking at just over 100,000 per quarter, meaning per state, on average, they're buying 2000 vehicles in each state. That's not a lot. There's so much opportunity out there to go grab this and don't let the big box retailers take market share not just from the sales side, but also from the acquisition side. So creating a strategy to combat that locally. Google will prefer it Facebook will prefer it your local impact in an acquisition strategy is there for the taking. And Carvana is just proving that the market is there for it.

Paul Daly  14:07  

It's Carmax. That's that's

Kyle Mountsier  14:09  

our current Carmax sorry,

Paul Daly  14:10  

yeah, this isn't even Carvana This is car Max. You know, it's nice to have like Carfax has been kind of a leading indicator that a lot of dealers have looked to to say what are they doing? How can we? How can we understand it right? Because it's also public and it's also open. And there are plenty of people even in our asoto ecosystem that can really give you a lot of insight into acquisition David Long being the first one that comes to mind. And a lot of tools I never thought about this, but remember used to spiff people for if they buy a car. Yep. Like why don't you just like take your whole workforce. In some cases that's 1000 1000s of people and saying like, Hey, let people know if we buy their car will give you 250 bucks. Right? You can buy more chicken wings. Expensive chickens.

Kyle Mountsier  14:54  

buy more chicken

Paul Daly  14:55  

really. I mean there's a lot of a lot of people are like, Hey, this is the best place to buy a car All right. So that's probably we probably be, we say

Kyle Mountsier  15:03  

this, the absolute best 50 marketers in your store are all 50 of your employers and employees. So whether. So whether they're telling everybody that you buy cars or sell cars or service cars, they should be telling everybody all of that.

Paul Daly  15:17  

Yeah. And it's easy, make it easy. Gosh, last night for the car Max story, total revenue was up 49%, total earnings slipped by 28%. So they're going another again, a whole lot more money came in top line, a whole less money, a whole lot less money we kept. So it's just kind of par for the course. So we got a couple more things to do. And we'll put this in between one of the things we want to talk about leadership principle today. And that's like, literally momentum, keeping moving, not even momentum. It's just keeping moving. There's a comment principle, if you're not moving, you're dying. And you realize successful people, successful dealers, successful business owners, they keep moving, you cannot hunker down, you cannot stay in one place because you have your little thing protected. The second you do that, right. Everything else is moving around you. It's not stopping, and it's going to move away from you. Speaking of moving a lot of stuff, segue. Let's ask some questions about EVs. I think I think this next season is gonna be a lot of poke fun. Let's

Kyle Mountsier  16:21  

poke the bear just a wee bit.

Paul Daly  16:24  

Poke it up just a tad. All right. So there is a lot of Eevee structure formulating like, it's like circling the runway, right? All these things? Like, when's it going to land? What's it going to look like when it lands? When it lands? What's coming out of a cargo area? Like we don't know. And so, as we've been talking to some dealers, and thinking through this, there's some major questions that I think we need to talk more about in this ecosystem, and I think spur the conversation. Number one, like, what is the margin structure going to look like? What level of training is going to be needed? Where the OEM is going to do? What will sales compensation plans look like? What are they going to look like, from the OEM? What's their recommendation be going to be? What are dealers going to do to incentivize their people? Because the truth is like, it's just going to look really, really

Kyle Mountsier  17:13  

difference. Yeah, when when, when the major players are going to direct to consumer, you know, there's no compensation plans needed within that model. And so OEMs are looking at that going, well, what's, you know, looking at the dealers going, what are we going to do about that level of margin that we're kind of, quote unquote, giving up in one way or the other. So either they're gonna retain that margin, or, you know, forced dealers to, to make changes in in that, and dealers are going to have to get smart and savvy, I was actually having a conversation with a marketing director yesterday, just talking about, you know, how dealers need to be recognizing that moving toward a similar model of, you know, software as a service or service as a service is going to be really important over the next over the next four to five years in service

Paul Daly  18:05  

as a service, a real thing. Service as a service, I've never know,

Kyle Mountsier  18:09  

I mean, I might have made it up. But I was just saying, like, I was like, I'm so farming, you're gonna be in this stuff. No, no, I think I made that up. But like, my mentality around saying service as a service is that that like, like software as a service is built on recurring revenue model, right, is, you know, increase recurring revenue, decrease churn, you know, keeping keeping the pipeline full of money every single month. And so service as a service, for me, is, is meaning how do I keep recurring revenue in the pipeline every single month to build on top of evey sales, right? It's kind of like a play on words, there for me is how do we get how do we get recurring revenue into the dealership, that is maybe not in a way that we've done it in the past. And we might not be able to sell software, but we might be able to sell service as a recurring revenue stream, whether that be servicing the vehicle, servicing the electric, you know, all of the things that require electric across the house, you know, maintenance packages, upgrade packages, things like that. So thinking about those type of revenue models, I think is going to be important for dealers that don't just want to, you know, be be, you know, siphoned off to become used car dealers with fancy delivery centers.

Paul Daly  19:31  

You know, if the mach II profit model is any indicator of where we're going, three to $500, a vehicle, the period, end of story, right? I mean, it's one thing when that is like kind of an add on to your current product offering and you get to be the first to have it and you get some inventory allocation. Right, when that's everything quite a bit when every dealer on the block has an electric offering. When Most of your vehicles or EVs that are being ordered, like there's a lot of questions because three to $500 is like, is like one of these moments. Like that's like they used to call that a spiff.

Kyle Mountsier  20:15  

Right, they used to call that trunk money. Actually not even that it was like,

Paul Daly  20:19  

out front trunk money, right? The only money there was no, no. But for real like, is what is going to happen with that? And what are the other monetization around that? You know, one thing that that came up and I haven't heard anyone talk about this yet. But you know, we were talking about subscriptions, right? And that's a big source of revenue. And EVs is going to be the subscription model like do you want, right? Enhance this? Do you want the updated that and if you want that you got to pay? Like, do dealers get a portion of that subscription money? Right, like

Kyle Mountsier  20:46  

no way. There's no way they're passing that down? The ones that have it already? Don't you know, like the app based services like your fancy Kia, right? They don't pass that down. Yeah, well, winter

Paul Daly  20:57  

is over. I don't need it anymore. Remote Start once again. Unbelievable. You can take two Yeah, give me a coffee. I love it, too. It's a shame. It's a shame. But but we're going to talk more about these things in the near future. I know we're going a little long time because we haven't talked in a couple of days. But um, but really, these are the issues that if we're paying attention, and if we are moving, and if we are having these conversations, I think OEMs and dealers like banding together to work out something that's reasonable on both sides. Right. Let's try not to make it contentious. Let's try to make it like synergistic. And for every dealer out there, every single one, whether you're a new us, whatever your situation, whichever OEM, it is a gold rush to be the one in your community that educates on EVs. That becomes the center of the conversation for EVs in your community. If you're not thinking that way. Oh, my gosh, you're losing already cuz somebody's thinking it's beachfront property. Right now. If you actually mean around EVs, not just your brand EVs, but EVs in general, become the coolest place the center point, the most education, become that person and by the way, like Tik Tok is a good place for that in your community. Everyone's like, Well, what I use Tiktok for educate on EVs become a place of regardless of what the dealer spiff program is, you can actually win the Eevee race, but you have to start paying attention now because somebody else in your market is going to if you don't, and because remember, the used car business is going to be the used car business after the spiffs. And after all that stuff. So get good at EVs. That's great. I don't know, man. We weren't really long today. Thank you very much. We're excited about what's going on. There's a lot to talk about a lot going on, sign up a soda.com get on the email list. And we got more announcements about our Friday event March. I have to keep talking. Go you're still listening

Transcribed by https://otter.ai