Carmax FY 2Q16 Earnings Call Notes

Customers want to do more and more of the transaction from home

“what we are trying to do is make sure our customers can do as much of the transaction as they want to do from home. We’ve definitely seen the sentiment shift where customers are looking to do more and more research, more and more pieces of the transaction from home, and in some cases the entire transaction from home”

High lease percentage means used cars coming to auction with more predictability and organization

“When it’s a very high lease percentage, it’s kind of more predictable, so if there’s a bunch of leases going out now, if it’s almost 30% of new cars sales, two years out, three years out we’re going to see a lot of leases coming back. They tend to be a lot more organized at the auction, maybe even a little bit easier for us to have access to.”

The volkswagen thing only relates to the diesel product

“the Volkswagen, which just came out so we’re really still just evaluating it. It only relates to diesel product. We have about– I mentioned earlier we have about 50,000 cars online. We have only a couple of hundred diesel products, Volkswagens or Audis, so very, very small.”

More demand for SUVs with lower gas prices

” what I’ve seen in that product is prices have gone up because there’s more demand, so I think the lowering of gas prices has caused some higher prices when you’re looking to buy those cars at auction, but not something that caused it to move meaningfully one way or the other in terms of our sales”

No change in aggressiveness of tier 3 lenders

“we’ve seen pretty consistent behavior from our Tier 3 lenders, and when I say consistent behavior, it doesn’t necessarily mean what percentage of sales are getting done by Tier 3 because they are impacted by what is actually flowing down through the channel and that they’re able to see, so if there is a change in credit mix or if our other Tier 2 lenders are becoming more aggressive, it changes the nature of what they are seeing. What we look at is their behavior on how many of the applications that they see, they approve, and if they convert, and on those bases we’ve seen pretty consistent behavior.”

The market is still extremely fragmented

” the market is extremely fragmented and the fact that all of those cars are online doesn’t change the fact that when the customer goes and actually goes through the process, they still have to go through a process in a way that makes them uncomfortable.”