Competitors and competitive factors

Competitors and Competitive Factors

CarMax: CarMax is the nation's largest retailer of used cars. CarMax was the first used vehicle retailer to offer a large selection of high quality used vehicles at competitively low, fixed prices using a customer-friendly sales process in an attractive, modern sales facility. The CarMax consumer offer provides consumers the opportunity to shop for vehicles the same way they shop for items at other "big-box" retailers. CarMax has designed a strategy to better serve the auto retailing market by addressing the major sources of dissatisfaction with traditional auto retailers and to maximize operating efficiencies with standardized operating procedures and store formats enhanced by sophisticated, proprietary management information systems.

The company purchases, reconditions, and sells used vehicles. In general, the used vehicles retailed by CarMax are one to six years old with fewer than 60,000 miles. All used vehicles are thoroughly reconditioned to meet high mechanical, electrical, safety, and cosmetic standards and must pass a comprehensive inspection before being offered for sale. Each superstore also offers a selection of used vehicles which are more than six years old or have more than 60,000 miles, but which meet similar quality standards.

The company also sells new vehicles under franchise agreements with four new car manufacturers. In fiscal 2006, new vehicles comprised 7% of the company's total retail vehicle unit sales. As planned, CarMax's new car sales have become a smaller part of its business mix over the past five fiscal years as it has divested 14 new car franchises while aggressively growing its used car business. CarMax expects to maintain long-term relationships with the automotive manufacturers that it currently represents(Edgar Online, 2006).

CarMax provides its customers with a full range of related products and services, including the financing of vehicle purchases through CarMax Auto Finance ("CAF"), the company's own finance operation, and third-party lenders; the sale of extended service plans and accessories; the appraisal and purchase of vehicles directly from consumers; and vehicle repair service(Edgar Online, 2006).

The CarMax consumer offer enables customers to evaluate separately each component of the sales process and to make informed decisions based on comprehensive information about the options, terms, and associated prices of each component. The customer can accept or decline any individual element of the offer without affecting the price or terms of any other component of the offer. CarMax's "no-haggle" pricing and its commission structure, which is based on a fixed dollars-per-unit standard, allow its sales consultants to focus solely on meeting customer needs.

The company has separated the practice of trading in a used vehicle in conjunction with the purchase of another vehicle into two distinct and independent transactions. CarMax will appraise a consumer's vehicle and make a cash offer to purchase that vehicle regardless of whether the owner is purchasing a vehicle from CarMax. CarMax acquires the majority of its retail used vehicle inventory through this unique in-store appraisal process. The company also acquires a significant portion of its used vehicles through wholesale auctions and, to a lesser extent, directly from other sources, including wholesalers, dealers, and fleet owners. Vehicles purchased through the company's in-store appraisal process that do not meet CarMax's retail standards are sold at on-site wholesale auctions(Edgar Online, 2006).

CarMax's inventory management and control system tracks each vehicle throughout the sales process. Using the information provided by this system and applying sophisticated statistical modeling techniques enable CarMax to optimize its inventory mix and display by store, anticipate future inventory needs at each store, evaluate sales consultant performance, and refine its vehicle pricing strategy(Edgar Online, 2006).

Competitive Strategy: CarMax's primary competitors are the franchised new car dealers, who sell the majority of late-model used vehicles. Independent dealers predominantly sell older, higher mileage cars than does CarMax. In both the used and new vehicle markets, CarMax seeks to distinguish itself from traditional dealerships through its consumer offer, sales approach, and other innovative operating strategies(Edgar Online, 2006).

CarMax's Certified Quality Inspection assures that every vehicle offered for sale at CarMax meets stringent mechanical, electrical, and safety standards. CarMax backs every vehicle with a 5-day, money-back guarantee, and at least a 30-day limited warranty. Other competitive factors include the ability to offer or arrange customer financing on competitive terms and the comprehensiveness and cost of extended service plans. CarMax believes that it is competitive in all of these areas and that it enjoys advantages over competitors that employ traditional high-pressure, negotiation-oriented sales techniques (Edgar Online, 2006).

Employees: CarMax's sales consultants play a significant role in ensuring a customer-friendly sales process. A sales consultant is paid a commission based on a fixed dollars-per-unit standard, thereby earning the same dollar sales commission regardless of the price or gross margin on the vehicle being sold. This ensures that the sales consultant's primary objective is helping customers find the right cars for their needs at prices they can afford. In contrast, sales and finance personnel at traditional dealerships often receive higher commissions for negotiating higher prices and for steering customers toward vehicles with higher gross margins (Edgar Online, 2006).

Marketing and Advertising: CarMax's marketing strategies are focused on developing awareness of the advantages of shopping at its stores and on attracting customers who are already considering buying or selling a vehicle. The company uses market awareness and customer satisfaction surveys to help tailor its marketing efforts to the purchasing habits and preferences of customers in each market area. CarMax's marketing strategies are implemented primarily through television and radio broadcasts, carmax.com, the Internet, and newspaper advertising. Television and radio broadcast advertisements are designed to build consumer awareness of the CarMax name, carmax.com, and key components of the CarMax offer. Newspaper advertisements promote CarMax's broad selection of vehicles and price competitiveness, targeting consumers with immediate purchase intentions (Edgar Online, 2006).

The company's website, carmax.com, is a marketing tool for communicating the CarMax consumer offer in detail, a sophisticated search engine for finding the right vehicle, and a sales channel for customers who prefer to complete a part of the shopping and sales process online. The CarMax website offers complete inventory and pricing search capabilities. Information on the more than 22,000 cars available in the company's nationwide inventory is updated daily. Carmax.com includes detailed information, such as vehicle photos, prices, features, specifications, and store locations, as well as sorting and comparison features that allow consumers to easily compare vehicles. The site also includes features such as detailed vehicle reviews, payment calculators, and an option to estimate trade-in values via a link with Kelley Blue Book. Customers can contact sales consultants online via carmax.com, by telephone, or by fax. Customers can work with these sales consultants from the comfort of their home, including applying for financing, and need to visit the store only to sign the paperwork and pick up their vehicle (Edgar Online, 2006).

Suppliers of Used Vehicles: CarMax acquires its used vehicle inventory directly from consumers through its unique in-store appraisal process and through other sources, including local and regional auctions, wholesalers, franchised and independent dealers, and fleet owners, such as leasing companies and rental companies (Edgar Online, 2006).

The CarMax in-store appraisal process gives the company access to individual consumers as its largest source for used vehicle inventory. The most popular makes and models are more readily available directly from consumers than from other sources. In stores open for more than a year, CarMax acquires the majority of its used vehicle inventory directly from consumers. This buying strategy also helps provide an inventory of makes and models that reflects the tastes of each market (Edgar Online, 2006).

Seasonality: CarMax's business is seasonal. Most CarMax superstores experience their strongest traffic and sales in the spring and summer fiscal quarters. Sales and gross margins are typically lowest in the fall quarter, which coincides with the new vehicle model-year-changeover period. In the fall quarter, the new model year introductions and discounts on model year closeouts generally can cause rapid depreciation in used car pricing, particularly for late-model used cars. Seasonal patterns for car buying and selling may vary in different parts of the country and, as CarMax expands geographically, these differences could have an effect on the overall seasonal pattern of the company's results (Edgar Online, 2006).

Merchandising and Pricing: CarMax has implemented an everyday low-price strategy under which it sets no-haggle prices on both its used and new vehicles. The company believes that its pricing is competitive with the best negotiated prices in the market. Prices on all vehicles are clearly displayed on each vehicle's information sticker; on carmax.com, AutoTrader.com, and cars.com; and in CarMax's newspaper advertising. CarMax extends its no-haggle philosophy to every component of the vehicle transaction, including vehicle appraisal offers, financing rates, accessories, extended service plan pricing, and vehicle documentation fees. In addition to selling new vehicles using the low, no-haggle price strategy, the franchise and dealer agreements generally allow CarMax to perform warranty work on these vehicles and sell related parts and services within a specified market area. Designation of specified market areas generally does not guarantee exclusivity within a specified territory (Edgar Online, 2006).

Extended service plan sales: At the time CarMax sells a vehicle, it offers the customer an extended service plan. Currently, in all the states in which CarMax operates, it sells these plans on behalf of unrelated third parties that are the primary obligors. Under these third-party service plan programs, CarMax has no contractual liability to the customer. The extended service plans have terms of coverage from 12 to 72 months, depending on the vehicle age and make. CarMax offers these extended service plans at low, fixed prices, which are based primarily on the repair record of the vehicle and the length of coverage selected. All extended service plans sold by CarMax (other than manufacturers' warranties) have been designed to CarMax specifications and are administered by the third parties through private-label arrangements under which CarMax receives a commission from the administrator at the time the extended service plan is sold (Edgar Online, 2006).

CarMax's extended service plan customers have access to the company's vehicle repair service at each store and to the third-party administrators' nationwide network of approximately 14,000 independent service providers. CarMax believes that the quality of the services provided by this provider network, as well as the broad scope of its extended service plans, helps promote customer satisfaction and loyalty, and thus increases the likelihood of repeat and referral business (Edgar Online, 2006).

Systems: CarMax's stores are supported by an advanced information system that improves the customer experience while providing tightly integrated automation of all operating functions. Using in-store information kiosks, customers can search each store's vehicle inventory and print a detailed listing for any vehicle, which includes the vehicle's features and specifications, and a map showing its specific location on the display lot. CarMax's inventory management system tracks every vehicle through its CarMax life from purchase through reconditioning and test drives to ultimate sale. Bar codes are placed on each vehicle and on each parking space on the display lot, and all vehicle bar codes are scanned daily as a loss prevention measure. Test drive information is captured on every vehicle using radio frequency identification devices, linking the specific vehicle and the sales consultant (Edgar Online, 2006).

AutoNation, Inc.: Is the largest automotive retailer in the United States. AutoNation has 272 dealerships nationwide, and employs approximately 25,000 employees. AutoNation sells 37 different manufacturer brands nationwide. AutoNation outsells every other automotive retailer in the U.S. and is ranked #138 on the 2008 Fortune 500. The company has a significant internet presence, offering its entire inventory for online searching. Instead of supporting a national mark; AutoNation has developed a unique brand name for its dealerships in each market. In the Tampa bay area, AutoNation is known as "Auto way" (10-K Report, 2006).

AutoNation offer a diversified range of automotive products and services, including new vehicles, used vehicles, parts and automotive repair and maintenance services, and automotive finance and insurance products. They also arrange financing for vehicle purchases through third-party finance sources. AutoNation believe that the significant scale of our operations and the quality of their managerial talent allow them to achieve efficiencies in their key markets by, among other things, leveraging the market brands and advertising, improving asset management, implementing standardized processes, and increasing productivity across all of their stores(10-K Report, 2006).

Business Strategy: As a specialty retailer, AutoNation's business model is focused on developing and maintaining satisfied relationships with their customers. The foundation of their business model is operational excellence. AutoNation pursue the following strategies to achieve their targeted level of operational excellence (10-K Report, 2006),

  • Deliver a positive customer experience at their stores.
  • Leverage their significant scale to improve operating efficiency.
  • Increase their productivity.
  • Build a powerful brand in each of their local markets

E-Vehicles Program: E-Vehicles Program, in partnership with Edmunds.com, identifies fuel-efficient vehicles, with 8.40 L/100km (28 miles per gallon) or delivers 10% better fuel efficiency than the average for their vehicle class(10-K Report, 2006).

Inventory management: They focus on managing their inventory levels in accordance with consumer demand, and believe in maintaining a minimum level of inventory at lower volume stores that is representative of the full line of vehicles offered by manufacturers. This may result in a higher days supply of inventory than would otherwise result if were in a better economic environment. However, given their inventory management practices (such as managing their inventory purchases based on their sales forecasts and sharing inventory among stores within a local market), they do not believe the current business climate is likely to result in material impairment charges related to new vehicle inventory (10-K Report, 2006).

AutoNation continue to monitor their new vehicle inventory levels closely based on current economic conditions and will adjust them as appropriate. In general, used vehicles that are not sold on a retail basis are liquidated at wholesale auctions. AutoNation record estimated losses on used vehicle inventory that are expected to be liquidated at wholesale auctions at a loss. AutoNation used vehicle inventory balance was net of cumulative write-downs of $1.7 million, as of December 31, 2008, and $2.0 million, as of December 31, 2007. Parts, accessories, and other inventory are carried at the lower of acquisition cost (first-in, first-out method) or market. AutoNation estimate the amount of potential obsolete inventory based upon past experience and market trends (10-K Report, 2006).

Delivers a positive customer experience : AutoNation's goal is to deliver a positive customer experience at stores. Their efforts to improve customers' experience at stores and include the following practices and initiatives in key areas of their business,

  • Improving Customer Service - The success of their stores depends in significant part on their ability to deliver positive experiences to the customers. They have developed and implemented standardized, customer-friendly sales and service processes, including a customer-friendly sales menu designed to provide clear disclosure of purchase or lease transaction terms. They also believe these processes would improve the sales and service experiences of the customers. They emphasize the importance of customer satisfaction to key store personnel by basing a portion of their compensation on the quality of customer service they provide in connection with vehicle sales and service (10-K Report, 2006).
  • Increasing Parts and Service Sales -The key initiatives for their parts and service business are focused on optimizing the processes, pricing, and promotion, thus improving customer retention. They have implemented a standardized service processes and marketing communications, which are designed to ensure that they offer the complete range of vehicle maintenance and repair services to its potential customers. Their processes and marketing communications are focused on increasing the customer-pay service, collision, and parts business. They optimize their pricing to maintain a competitive offering for commonly performed vehicle services and repairs for like-brand vehicles (10-K Report, 2006).

Car Donation Program: AutoNation also has the option of Fast and Easy car donations in USA, where people can donate their cars online. Online live operators are standing by 7 days a week. Donation forms are available on their website and once the form is completed the company picks up the vehicle from your door. They also have a list of charities on their website (browse by state), where customers can choose one and fill out the form easily without any hassle (10-K Report, 2006).

Other Used Car Markets: The growth of the Internet has fueled the availability of information on the prices and features of used cars and provides numerous deals with no- haggle services to its customers. However, these are some of different features which eBay and cars.com use to sell cars within their markets (10-K Report, 2006).

eBay Motors: eBay Motors is a part of eBay Inc., the world's online marketplace, is the Internet's largest marketplace for buying and selling of all things related to automotive. The site offers everyday cars for everyday drivers, as well as collector cars, motorcycles, auto parts and accessories. Their marketplace strategy is to involve buyers and sellers together in a more cost-effective manner than traditional intermediaries and available alternatives. (Annual Report, 2008)

Key Services for Buyers and Sellers: They have developed a number of features in the areas of Trust and Safety (including Feedback Forum, Safe Harbor Program and Verified Rights Owner Program), Customer Support and Value-Added Tools and Services, as well as Loyalty Programs (such as top buyer, coupons, and buyer rewards). These features are designed to make users more comfortable dealing with unknown trading partners and completing commercial transactions on the Internet.

Online Advertising and Other Services: They work with strategic partners in a variety of areas, such as online advertising, mailing and other services, that allow them to extend the monetization of their platforms and user base. In 2008, they also launched their own advertising service that enables third parties to directly purchase text advertising promoting their eBay listings and eBay stores to appear on their websites.

Best Features for Customers: They have developed the online selling option of comparing two different vehicles at the same time for the auto buyers in the market. They provide the price research facility along with Kelley Blue Book (suggested retail value) which helps the customers to easily compare prices from the same websites.

Vehicle Purchase Program: The Vehicle Purchase Protection (VPP) program provides protection of up to $50,000 against certain losses associated with some types of fraud. Customers are automatically enrolled in the program at no charge when completed the purchase of an eligible vehicle on the eBay Motors website. The VPP program is not an insurance policy, a solution for buyer's remorse, or a substitute for buyer diligence (i.e. pre-purchase research and inspection).

Parts and Accessories: eBay motors sells all types of parts and accessories for the vehicles it sells online. They already has the largest parts inventory on the web which reinforces their position as a leading automotive destination online with access to the best inventory used, refurbished along with liquidation of automotive parts and accessories space.

Cars.com: Cars.com is the most comprehensive destination for those looking to buy or sell a new or used car. The site lists more than 2 million vehicles from 13,000 dealer customers, classified advertisers and private parties to offer consumers the best selection of new and used cars online, as well as the content, tools and advice to support their shopping experience. It also provides free Carfax report on the website with each and every model of the car. Recently it has been selected by Forbes.com as a Best Website for car shopping, Cars.com combines powerful inventory search tools and new-car configuration with pricing information, photo galleries, buying guides, side-by-side comparison tools, original editorial content and reviews , which helps millions of car shoppers connect with sellers each month. (Cars.com)

Advertising: Cars.com advertises across 175 of the nation's leading newspaper and television websites such as azcentral.com, boston.com, dallasnews.com, latimes.com, philly.com, startribune.com and washingtonpost.com, in addition to other partners websites such as Yahoo autos, Freebo, Consumer Guide automotive, Pickup trucks.com etc.

They have developed a feature of "sell it by yourself" on Cars.com for which customers have to purchase an ad that includes their 90 day Money back guarantee. If the seller is unable to sell or trade in their car after 90 days, they may be eligible to obtain a refund for their Cars.com advertisement.

Exclusive feature: Cars.com provides its customers a chance to "build your own car". Customers can pick the model, make, year, style, color, additional upgraded package etc. and create their own car. After selecting each feature from the website, it will show the exact picture of the car one has customized along with the final target price of the vehicle. This kind of interesting feature would also attract the customers, who enjoy driving customized vehicle.

Auto finance and Insurance options

Auto Finance: A few decades ago it was more difficult to get Car Loans or approach a bank for Auto Financing, but times have changed. Car companies have built up huge manufacturing facilities and manufacture hundreds of thousands of vehicles every month and same with the used car companies as well. They need to sell these vehicles and reduce inventory every month. Car companies realize that not everybody can purchase a vehicle with outright cash and this is where Banks, Auto Financing Companies step in. Banks and Auto Financing Companies collaborate with Vehicle Dealerships to provide Car Loans at an affordable rate to enable the salaried employee and middle class individual to own a vehicle. The urge to acquire new customers and increase sales has also seen a war of sorts between different Car Loan Companies and many of them offer excellent rates of interest along with other benefits to entice a new client.

However, Auto Financing Companies also understand that it is not only beneficial to acquire new customers on a regular basis, but it is also essential to retain existing customers with excellent service. A happy and satisfied customer will always return if they need another vehicle and will also advise their friends and family to deal with a particular Auto Financing Company. As such they strive to reduce not only the paper work required, but they also give out gifts and incentives to entice the new customer to deal with their company.

Opting for Auto Financing is not a bad deal as interest rates are low and it also makes sense not to purchase a vehicle with full cash payment and thus reduce bank balance. The money in customer's bank, which can be saved by opting for Car Loans, can be better utilized elsewhere, and in any case can serve as a safety net in bad times and financial emergencies. Thus, nowadays many vehicle dealerships and used car companies have tie-ups with Car Loan companies and Banks and will provide assistance in selecting an Auto Financing company.

Also, there is one more option from auto financing companies for the customers who have bad credit history, but still wants to apply for Car loan. However, some of these companies also provide a Second chance at Auto Financing even if the customer has a previous bad credit record. Of course this will require more paper work and may even cost a bit more. But a Second credit chance at a Car Loan even with higher interest rate is better than no Car Loans.

Same way, even ABC can provide assistance to its customers in selecting auto financing company by making a tie ups with one of the Banks or auto loan company, who can provide the best interest rates in Tampa Bay area to its customers. So, ABC can hire a professional staff for taking care of customers' requirements. ABC can also opt for installing Java software on its website for monthly car payment estimator or calculator, which can help customers to get the quotes for vehicles easily and quickly without any hassle.

Auto Insurance:

How customers looks for cheap rates:

Motorists who do not feel like searching for low rates do have a point; low prices for auto coverage don't just pop out and say, "Here I am!" However, contrary to their belief, they aren't exactly hidden away either. It does take time to find them, but not the kind of time imagined by people who feel it could take half or even all day long to discover. An easy and quick way to find cheap rates is by using the online quote tool which gathers quotes for a driver. Any driver can sit down and use the tool simply by entering in their zip code (in the white box found in the center of the homepage) and then answer the questions that appear. By answering these questions accurately, the applicant or motorist will be shown a list of quotes that can be applied to his or her new policy from local insurers. It is obvious that this way of collecting quotes is much faster than traditional methods of contacting insurers individually.

What tips can ABC provide its customers regarding Car Insurance?

Many car buyers neglect the importance of shopping for auto insurance and end up spending too much money for their car insurance payments.

Shop for Low Insurance Rates

Internet has increased the competition between car insurance companies and now it is much easier for car owners to shop for low insurance rates and compare insurance quotes. Yet, many people still don't shop for insurance in the same way they shop for the best auto loan rates when they are looking to buy a new car. As a result, often the savings made from a good car deal are suppressed by unfavorable insurance terms.

There are various auto insurance discounts customer can get advantage of, so when buying an insurance policy customer can get all the discounts if they qualify for.

  • Discounts for car safety features
  • Car safety features are a very good way to lower the car insurance payments. Additional equipment like air bags, automatic seatbelts and anti-lock brakes will not only increase safety when driving, but also decrease the insurance payments. In some states discounts for such safety features are compulsory and insurers are required to reward their customers with lower payments if they have installed anti-lock brakes for example.

  • Discounts for combined coverage
  • One can save a lot of money if he/she insures their car with the same insurance company that they use for their homeowner's insurance policy. Ask if their company provides combined coverage and take advantage of it in order to lower the payments on their car insurance.

  • Renewal discounts
  • If the customers have been with their insurance company for a long time and have not had accidents, it is very likely to get a discount if they decide to renew their insurance with same company.

  • Discounts for more risk assumed by the driver
  • One could lower their monthly insurance premium by as much as 30 percent if they ask for a higher deductible. This is the amount of money customer pay before the insurer begins paying the rest.

  • Discounts for being "accident free"
  • Many insurance companies offer discounts for their customers who haven't had an accident over a certain period of time.

  • Discounts for senior drivers
  • If customers are over 40 or 50, they may be eligible for a discount. Check whether their insurance company offers such discounts.

  • Some of the companies serving the Tampa area can provide the customers with an auto Insurance quotes:
    • Geico
    • Auto Insurance Quotes
    • Esurance (online auto Insurance)

Extended cost of warranty & Cost of service/repair:

A used-car extended warranty can cost as little as $65 and as much as $3400. It all depends on the make and model of the vehicle and what type of coverage that a customer want AND from where they want to buy it.

For example: CarMax has all its service plans with MaxCare.

All cars occasionally need repair. And while the monthly payment is something one can plan and predict, repair costs can come up any time, without warning. Naturally, the older the vehicle and more mileage it has, the greater the likelihood of a necessary repair.

Finding a car dealership that offers an "auto warranty" on their used cars isn't hard. But finding one that offers an extended service plan that really protect a customer is nearly impossible. That's why CarMax offers MaxCare (Source: CarMax.com)

What is MaxCare?

MaxCare is an extended service plan available on every CarMax used car. For just a few dollars a month, the car is covered by a plan that actually tells customers up front what it does and doesn't cover.

CarMax used cars can be covered by MaxCare, a comprehensive extended service plan that lasts up to 72 months or 100,000 miles.

Here's what makes MaxCare different:

  • Cause and effect coverage: If a non-covered part fails as a result of a covered part, the non-covered part will still be repaired and replaced.
  • Named exclusion policy: Most service plans name the parts they cover, not the ones they don't. MaxCare extended service plans cover all parts of the vehicle except what is specifically excluded.
  • Customers get nationwide coverage at any authorized repair facility.
  • Low deductible per visit, not per repair.
  • Direct payment is made to the participating service center.
  • Affordable, flexible payment terms that can be included in the monthly payment.
  • Towing: MaxCare will cover up to $50 per occurrence.
  • Rental reimbursement: If the car is kept overnight, current MaxCare policies will reimburse customer $25 a day for up to seven days. (policies apply)
  • Comprehensive coverage for engine, transmission and drive axle, steering, front suspension, brakes, electrical system, electronic system, air conditioning, cooling system, interior and assemblies and controls.

Flexible coverage: Customers can choose the coverage term (months & miles) that matches the driving needs. And if customer sell the car, the coverage is transferable (Some restrictions apply).

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