Circuit City at Wheel of New Deal for Used-Car Shoppers: Megastores
Plaid sports coats, conspiratorial winks and a willingness to say anything, truth or lies, to make a deal.
That stereotype probably doesn’t relate much to reality anymore, but it still shapes America’s perceptions of the people who sell used cars.
“If you look into all of the buying processes in this country, the used car buying process image ranks close to the bottom,” says Chrysler Corp. sales Vice President E. Thomas Pappert.
Circuit City Stores Inc., the giant appliance and consumer electronics retailer, is trying to change that image. Its initial success is spawning imitators.
“We did a lot of research and concluded there was a considerable gap between the way cars were being sold and the way customers wanted to buy them,” said Circuit City Senior Vice President W. Austin Ligon.
Circuit City believes customers want to buy used cars at CarMax, the Auto Superstore. Its four huge CarMax stores look more like high-tech new-car dealerships than used car lots. Each has hundreds of used cars and trucks in its inventory.
“Our focus is on cars 1 to 5 years old with less than 70,000 miles,” Ligon said. “We try to have almost everything you’d want to choose from in one location.”
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Borrowing heavily from the lessons of Saturn, General Motors Corp.’s start-up small car division that has become a marketing phenomenon in the past five years, CarMax uses a “customer-friendly selling process,” he said.
Prices are fixed, no haggling. Customers “shop the lot” using touch-screen computer terminals in a spacious showroom that has a play area for kids. If they want to trade in a vehicle, buyers get an appraisal that they can take in cash if they don’t find what they want to buy at CarMax.
Each vehicle is reconditioned and carries a five-day money-back guarantee and a 30-day warranty. Longer warranties are offered at extra cost.
The company has CarMax outlets in Richmond, Va., where it is based, in Raleigh, N.C., and two in the Atlanta area. It has targeted several other cities for used car superstores, including Charlotte, N.C.; Tampa and Orlando, Fla.; Dallas-Fort Worth and Houston, Texas, and the Washington, D.C.-Baltimore, Md., area.
CarMax officials won’t say how well the system is doing. But it apparently is working well enough to encourage competitors and interest the automakers.
H. Wayne Huizenga, the entrepreneur who built Blockbuster Video and then presided over its sale to Viacom Inc. for $8 billion, announced in December that he and a group of other Florida investors plan to open 25 Auto Nation used car megadealerships in 25 cities.
Waad J. Nadhir, a former Blockbuster franchise owner who moved into the retail shopping center business, has plans for two CarChoice megastores, one in Michigan and one in the Dallas area.
“It is our opinion here that cars should be sold in an outlet of this type, no matter what the age or price, new or used,” Nadhir said recently at the Bloomfield Hills, Mich., headquarters of his BOSC Group Inc.
In addition to the potential competitors, CarMax has attracted the attention of Chrysler. The automaker has granted a new car franchise to the CarMax store in Norcross, Ga. It will sell new Chrysler, Plymouth, Jeep and Eagle models alongside its used cars and trucks.
“CarMax has clearly demonstrated an ability to connect with the purchasing preferences of today’s late-model, used-car consumer,” Pappert said in a letter to all Chrysler Corp. dealers. “It is our plan to observe the CarMax process to determine what application, if any, these policies might have in the new car sales process.”
In an interview, he stressed that the company doesn’t plan to shift franchises away from its traditional dealer network of independent owners. But there is much to learn from CarMax, which is achieving customer satisfaction results that most dealers would envy.
“Customers are giving them a 90 percent favorable rating,” Pappert said.
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Other car makers are watching the CarMax phenomenon. GM officials have told the company’s dealers they plan more extensive used car warranty programs to help them compete for used car buyers.
Richard E. Colliver, senior vice president of American Honda Motor Co., said CarMax and its imitators will push traditional car dealers to focus more on serving used car customers. “It’ll force them to step up to this business,” he said.
It is a big business. Franchised car dealers alone sold about 11.7 million used cars and trucks in the past year, according to the National Automobile Dealers Association.
R.L. Polk & Co., the Detroit-based research and information company that is a primary provider of vehicle information, estimates that 35 million used cars and trucks are sold each year in the United States. That compares with a new light vehicle market that totaled about 14.8 million sales in 1995.
Demand for used cars has grown since the start of the decade, prompted in part by rising prices on new vehicles. The dealer association says the average new vehicle sold for $20,270 during the first 10 months of 1995. The average used vehicle sold by franchised dealers went for $10,980. But the average gross profit per vehicle was close to the same, so the profit margin on used cars was nearly twice that on new ones.
The used car business also is being driven by the growing numbers of low-mileage cars and trucks being injected into the market as their two- and three-year leases expire.
The potential market wasn’t the only motivator for Circuit City.
“The attraction to us was that we felt it was a good fit to our skills,” Ligon said.
He said Circuit City’s electronics stores are a success at customer service, complex logistics, sales of “big ticket” merchandise (like big-screen TVs) and the packaging of financing as part of a sale--all skills that transfer nicely to the used car superstore.
