Market Data – It’s Just Half the Story

February 12th, 2014 by
I was recently speaking to a large dealer group in Wisconsin and the topic of CarMax came up. The big box auto retailer is finishing up construction on two stores in town (their first venture in that market), and there was a sense of urgency to “figure this out” before CarMax set up shop and put them all out of business.
As a former manager with CarMax many years ago, I saw this attitude many times before. I remember buying cars at auction in San Antonio in preparation of the Austin store’s grand opening and hearing dealers that were not exposed to a huge CarMax presence before screaming at me “are you going to leave any cars for us?!?!?”. Fast forward 10 years, and upon visiting a dealership in Katy, TX (outside of Houston), the tone was much different. CarMax was hanging their sign out in front of a brand new location, and the GM of the dealership across the street couldn’t have been happier. This market had seen CarMax for the last decade plus, and he knew what they represented. He was excited at the prospect of droves and droves of potential customers being drawn in by CarMax and was confident he could flip them. CarMax was basically sending hundreds of new customers right in front of his dealership for free! Why was he so confident?
Because he was dialed into what his store performs well with and knows which units he can hold gross on and which units need to be turned quickly by having an incredible amount of analytics behind every pricing decision. Relying on only market data in an area that has a large CarMax presence is a recipe for disaster. CarMax has teams of analysts and data engineers that have become really good at predicting market trends and staying ahead of the buy, meaning they are predictive, rather than reactive. Market Data-only dealers will only be able to stay a couple hundred dollars behind CarMax on units they have a much higher acquisition cost due to CarMax’s efficiencies. Race to the bottom anyone?
What keeps CarMax ahead of the curve is their ability to repeat successes and recognize their opportunities based on their own data. Market data is only half the story, and it is the half that drives grosses to the lowest common denominator.