ASSIGNMENT TASK NO.

–1
PROJECT MANAGEMENT
(OPRM508)

Topic – CARMAX: DRIVING WHAT’S POSSIBLE

(Master of
Business Administration)

MITTAL SCHOOL OF BUSINESS

[Link] NAME [Link] PEER

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 CARMAX: DRIVING WHAT’S POSSIBLE
Introduction:
CarMax, Inc. is a used vehicle retailer based in Richmond, Virginia, United States. Circuit City, an
American consumer electronics retailer, created the CarMax concept. It took nearly a year to build
under the secret name "Project X" in 1991, but it was also known as "Honest Rick's Used Cars. “The
first CarMax retail site established in Richmond, Virginia in [Link] Chrysler, the firm obtained its
first new car franchise in [Link] has added additional car franchises for Mitsubishi, Toyota, and
Nissan by [Link] formally separated from Circuit City on October 1, [Link] 2021, the last
CarMax new car dealership left was a Toyota location.

The pre-owned market was at its largest since the recession in 2019, with sales of more than 40 million
automobiles totaling more than $150 billion. 5 Local dealer franchises selling used automobiles
competed with huge established companies such as CarMax, Penske, AutoNation, and Lithia, as well
as a slew of new internet shops such as Cars Direct and Carvana. Despite fierce competition, CarMax's
sales remained high, resulting in remarkable financial achievements (see Exhibit 1). In fiscal year
2019, CarMax sold over one million automobiles (748,961 retail and 447,491 wholesale), a 7%
increase over the previous year, while earning more than $18 billion in sales.

CURRENT STATUS OF THE COMPANY

 CarMax’s share of the nationwide age 0–10-year-old used vehicle market increased to a record 4.0%
in calendar year 2021, up approximately 13% from 3.5% in calendar year 2020.
 Net revenues rose 48.8% to $7.7 billion compared with the prior year fourth quarter. For the fiscal
year, net revenues increased 68.3% to $31.9 billion.
 Sold 343,413 units through our combined retail and wholesale channels, up 11.3% versus the prior
year quarter. For the fiscal year, sold 1,630,550 combined units, up 38.4% year-over-year.
o Retail used unit sales declined 5.2% in the fourth quarter to 194,318 vehicles, and
comparable store used unit sales declined 6.5%. For the fiscal year, retail used unit sales rose
22.9% to 924,338 vehicles, and comparable store used unit sales grew 21.9%.
o Wholesale units increased 43.8% to a fourth quarter record of 149,095 vehicles. For the fiscal
year, wholesale units rose 65.7% to a record 706,212 vehicles.
 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.
 Gross profit per retail used unit of $2,195 and gross profit per wholesale unit of $1,191, representing
year-over-year increases of $109 and $201 per unit, respectively, versus last year’s quarter. For the

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 fiscal year, gross profit per retail used unit was $2,205 and gross profit per wholesale unit was
$1,083, representing year-over-year increases of $92 and $90, respectively.
 CarMax Auto Finance (CAF) income improved 3.0% year-over-year to $193.8 million in the fourth
quarter, while full year CAF income grew 42.4% to $801.5 million.
 Net earnings was $159.8 million for the fourth quarter and $1.2 billion for the fiscal year. Net
earnings per diluted share was $0.98, down 22.8% compared with last year’s fourth quarter. For the
fiscal year, net earnings per diluted share rose 54.2% to $6.97.

Sales

Combined retail and wholesale used vehicle unit sales were 343,413, an increase of 11.3% from the
prior year’s fourth quarter. Online retail sales (1) accounted for 11% of retail unit sales, compared with
5% in the fourth quarter of last year. Revenue from online transactions (2), including retail and
wholesale unit sales, was $2.4 billion, or approximately 31% of net revenues, compared with 17% of
net revenues in last year’s fourth quarter.

Gross Profit.

Total gross profit increased to $711.0 million, up 10.9% versus last year’s fourth quarter. Retail used
vehicle gross profit declined 0.2%, reflecting the combined effects of the decline in retail unit sales and
an improvement in the related gross profit per unit, which rose $109 to $2,195.

Fiscal 2023 Capital Spending Plan

We currently plan to open ten stores in fiscal 2023, including our expected entry into the New York
metro market. We estimate capital expenditures will increase to approximately $500 million in fiscal
2023 from $308.5 million in fiscal 2022. The increase in planned capital spending in fiscal 2023
largely reflects spending to support our future long-term growth, including investments in auction,
sales, and production facilities, and technology.

Long-Term Targets

In May 2021, we introduced 5-year financial targets, including: (i) selling 2 million vehicles through
our combined 4 retail and wholesale channels by fiscal 2026; (ii) generating $33 billion in revenue by
fiscal 2026; and (iii) growing our nationwide share of the age 0-10 used vehicle market to more than
5% by the end of calendar 2025. Although we do not anticipate updating these targets annually, given
our strong performance in fiscal 2022, we believe it is appropriate to provide the following update at
this time:

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 Sell between 2 million and 2.4 million vehicles through our combined retail and wholesale channels
by scale 2026.
 Generate between $33 billion and $45 billion in revenue by fiscal 2026.
 Re-arm the growth of our nationwide share of the age 0-10 used vehicle market to more than 5% by
the end of calendar 2025.

Completion of project
 CarMax used the executive council to network with people outside of its sector, run trial projects,
graft knowledge, use advocates in powerful positions, and manage the change process by
highlighting early successes. The business also acquired knowledge about how to establish a new
value system, change management model, and product management process along the route.

 The digitally driven car dealers planned to reduce costs and streamline the entire car-buying process
by doing away with conventional brick and mortar showrooms. The Car Vending Machine was
Carvana's response to the dealership, offering a fully automated experience that included choosing a
car to buy online, setting up a time to pick up the car, and presenting the vehicle to the buyer without
human interference.

 Digital native start-ups had created a completely digital experience in which potential buyers could search
an online inventory and get a car delivered to them as soon as the next day. Carvana, Vroom, and Shift
had emerged as the leaders in this space and were beginning to gain some traction. For example,
Carvana had raised over $960 million in funding, and its sales had doubled in 2018 to 94,108 vehicles
sold which has made it the eighth-largest seller of used vehicles.

 While fully aware of these potential future threats to its dominant market share, CarMax believed that
its customer-centric, product-driven organization would continue to provide a sustainable competitive
advantage.

Challenges brought on by the differences for CarMax

1. Cost Competitiveness: When opposed to CarMax, digital native used-car dealers may offer much
lower prices for their vehicles since they require far fewer expenditures in physical assets like stores and
offices and human resources.

2. Tech Savvy customers: As more clients become tech savvy, they prefer to use internet platforms
rather than going to the store to check out the cars. Due to the absence of a CarMax internet presence,
these clients are lost.

3. Losing Opportunities: Artificial Reality and Virtual Reality have currently taken the globe by storm
because of the development of technology. Having a web presence can aid clients in better
comprehending the products before checking them out or making a purchase. When buyers see similar

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alternatives offered at other Digital Native used-car dealers, CarMax will lose these chances and
customer happiness will suffer.

Cause of the project: Success or Failure:

 The biggest dealer of used vehicles in the country is CarMax, which has its headquarters in
Richmond, Virginia. CarMax has experienced a significant digital transformation in the years
preceding up to 2019 by using agile, lean, and user experience (UX) design best practises to become
a customer-centric, product-driven corporation.

 CarMax is currently up against new rivals (such as the internet native businesses Carvana and Cars
Direct), shifting customer purchasing habits, and technology improvements in ride-sharing services,
driverless automobiles, and electric vehicles.

 CarMax must continue to develop from a traditional brick-and-mortar model characterised by legacy
corporate practises (such as annual roadmaps and budget cycles) to a product-focused, omnichannel
experience that offers significant value to its customers in order to maintain its dominant position in
the used-car market.

1)As discussed in the case, there are several disruptive technologies on the horizon
for CarMax. Describe how these technologies might impact CarMax’s business
model.

With the rapid change in technology innovation CarMax is in a tricky situation to adapt for further
growth. These technologies provided a completely different business model opposed to the traditional
way. Also, the market share is at stake with the change in customer preferences for buying a car due to
these technologies.

Competitors with digital presence extending their Market share

With minimal human intervention many of the competitors such as Carvana, Vroom and Shift had
changed gears in operation. All these companies changed their focus to give digital experience for the
end consumers. This shift had enabled them to invest their resources from physical stores to elsewhere.
In addition, the customer satisfaction had also increased as they were able to get more information from
the web before making their way to the dealership.
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Changing Customer Behavior:

• Customer’s preference is changing as they want are moving to more advanced cars which are self-
driven. Due to this the demand for second-hand cars had taken a significant hit.

• Consumers are looking more environmentally friendly options and with the latest technologies new
cars are coming up to meet this demand. This further reduced the demand for second-hand gasoline cars.

• Ride sharing had posed a new challenge to CarMax as many people, especially those living in cities
are finding ride share as more convenient way for transit.

• With the rise in access to internet and digitalization, many customers are preferring to completer the
entire transaction on the website itself. This is a complete shift as CarMax previously closed the deals
only through the physical stores. Not adapting to the new system will lead CarMax to lose the potential
customers.

Each disruptive technology focuses on one or more of the customer’s needs and empowers

them to select from a wide range of options and hence can impact CarMax’s business model in

following ways –

a. Online dealership: Unlike in-person stores, with an online dealership, customers can

compare the options and prices within different cars and places and thus might not want to visit the

physical stores offered by CarMax.

b. Better customer experience: Some of the competitors like Carvana, not only provide an

online dealership but also provides a complete human-free experience by providing car vending

machines. This might prove to be more convenient to end user as now the user can pick up the vehicle

as per his convenience rather than waiting for the store employee to hand him the keys during office

hours only.

c. Electric and autonomous cars: As with other industries, consumers nowadays prefer to

invest in better technology. But as CarMax has been operating with older car models, they might not

have the infrastructure, knowledge, skills, or the facilities to deal with the electric cars and hence

would need investment to cater to these needs and can impact their current business model. Apart

from these, marketing and sales might also need to think of new ways of increasing profit margins, as

now fewer people might want to go for the traditional older models available at CarMax.

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 d) Ridesharing platforms e.g., Uber, Lyft: A personal car can be convenient, but it also adds
driving labor and additional costs for fuel, parking, and insurance, which can be avoided by ridesharing.
This simple yet disruptive method can impact CarMax’s business model as the necessity of car is
reduced and fewer people would want to go for personal cars.

e) Public transport such as trams, bullet trains: With better connected faster and safer public
transport, fewer people may want to self-drive and hence might impact CarMax’s sales and business
model.

2)How might the cost structure of digital native used-car sellers differ from
CarMax? What challenges do these differences pose for CarMax?

The cost structure of Digital Native Sellers differs from CarMax in the ways listed below:

1. Manpower requirement: The digital native sellers require less manpower as the contact between
buyers and the platform happens mostly online in contrast to the necessity for labor in CarMax’s
situation.

2. Investments in Physical assets: There are extremely minimal investments required to establish these
physical assets because showrooms and offices are no longer used for interactions between buyers and
sellers.

3. Investments in Technological assets: The digital native used-car dealers must make significant
investments in technological infrastructure, such as websites, storage, etc., to prevent any disruptions
and maintain excellent customer service.

4. Product Varieties: When opposed to online used-car dealers who are not constrained by location or
store size, physical retail spaces have a far less selection of products because of their physical limitations.

3)How can and should CarMax respond to the competitive and disruptive threats it
is facing?

By the time of the case, CarMax has been providing excellent service to customers in the ever- changing
industry. But the rise of technology has challenged their status quo. To stay relevant and thrive in this
competitive and disruptive car-selling business, CarMax can look at the below options:

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 1. Car Leases: There is a huge lag between the time a user decides to sell a vehicle and the vehicle
being sold and the customer loses the opportunity cost of having the money during this time.
Instead, CarMax can help the customers by creating an ecosystem of Car lease facilities with
monthly or quarterly options for other users who are looking to try vehicles before buying them.

2. Ridesharing: Nowadays, with the rise of technology and the ever-changing needs of customers,
there is a completely new requirement for a lot of cars in the ride-sharing business. CarMax can
use this potential by renting out the cars to the drivers during the lag discussed above. This will
certainly help in building ever-lasting partnerships with technologically advanced companies like
Uber and Lyft.

3. Self-Driving cars: This is another business which is on the rise due to the changing technologies.
Many people are shying away from buying cars and are renting out cars only when required.
CarMax can consider the option of buying out cars from users and starting a self-driving cars
division or maybe partnering with bigger players like Enterprise or Hertz to provide cars to them.
This would again help CarMax in increasing the revenues and building partnerships with large
players.

4. Go Solar: These days, customers’ needs are changing, and they are becoming more eco-friendly.
CarMax can consider investing in innovative technologies to convert gasoline-based cars to some
form of hybrid between completely solar and completely gasoline-based. This would give them a
chance to tap in on the huge market potential that no other company has completely captured yet.

From our analysis, we believe CarMax should focus on building innovative technologies and partner
with technologically advanced companies to respond to the threats in the business.

4. CarMax has developed an organization focused on delivering value to its

CarMax used a waterfall approach since it was an output-focused business and they had to meet the
standards. The following are drawbacks of using this strategy to deliver products and services:

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 Senior management set the demands for the product and the company's goal, and the project team
had to meet them. As a result, project teams developed a culture of "ticket solvers." Budget and
team assignments were made by senior management, who also demanded that they produce
results months before the deadline. They made decisions only based on ROI calculations,
estimates of the required amount of work, and resource needs, which can result in a poor final
product.

 Stakeholders failed to take client business objectives or KPIs into account when gathering
requirements, which prevented the teams from coming up with a better solution.

 The applications were either overbuilt or underbuilt because even after adopting project
management, their planning, budgeting, and decision-making procedures were still using the
waterfall paradigm. Lower consumer satisfaction and a poor user experience could result from
this.

 The project teams used in this strategy were not long-lasting, thus they had to stay with a single
team over the entire product cycle and were only devoted to a task for a short time. Employee
productivity on a lengthy project was affected by this.

 The original model's products were not independently launched and came with the possibility of
crashing the entire system, which can have an impact on consumer satisfaction. The prior
methodology did not permit repeated product delivery and development, which constrained
innovation and hindered prompt, high-quality delivery.

 CarMax's new strategy for dealing with these issues empowered teams and used dual track agile.
They urged their product team to create only what was necessary based on ongoing feedback,
which produced a lean application. They employed DevOps, which guaranteed that the release of
the application was autonomous and did not run the danger of affecting other system functions.

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