How Employee Pricing Programs Benefited Used Car Retailer CarMax (KMX 2Q06 Conf Call Quotes)

Includes: AN, F, GM, KMX, PAG
by: Ezra Marbach

Despite the recent industry-wide implementation of "employee-pricing" on new cars used-car retailer CarMax (ticker: KMX) actually reaped numerous benefits from the programs. The following are comments from CarMax CEO Austin Ligon during management's Q2 2006 earnings results conference call:

We believe the new car employee pricing programs also had several benefits for CarMax. The employee pricing stimulated consumer interest and generated cross shopping opportunities particularly given the large differences between our used car average selling price versus the new car average selling price. The program also created more clarity on new car pricing which we believe is always beneficial to CarMax. It made price comparisons between our cars and those on offer from new car dealers easier and it also reduced the dealer's ability to negotiate on the price of a new vehicle which made it harder for dealers to do large negative equity deals which we have spoken about in the past. The programs also help drive our appraisal traffic higher particularly as dealers lost some negotiating ability on trade-ins and as we continued to make appraisal offers to all consumers despite a very dynamic wholesale environment which included continuously declining wholesale prices on gas guzzlers….higher than normal increases in compact car pricing.

On the Auto Industry

We are in the middle of a competitive shakeout in the auto industry. Ford and General Motors are facing problems… challenging as the ones….USAir and United and Delta are facing. Maybe more challenging.

(Quotes are from the CCBN StreetEvents transcript.)

KMX chart.