Automotive News - April 17, 2023 - 33

April 17, 2023 * 33
CARMAX
Priority on profit
per vehicle pays off
continued from Page 4
" On the retail side, we did expansive
price elasticity testing and determined
that we could have sold a few more
cars, but we actually would have made
less money, " Nash said during a call
with analysts.
Daniel Imbro, an equity research analyst
for Stephens Inc., said running
price sensitivity tests helped CarMax
conclude it was better to sell vehicles
at a higher price than issue discounts
in hopes of closing more sales.
" Taking an extra $100 off may not
help sell more units, so they drive
more gross profit dollars by capturing
more margin on each unit they sell, "
Imbro told Automotive News.
Still, CarMax's fourth-quarter net income
and revenue fell sharply from
RIVIAN
Motor launched on
Amazon EDV vans
continued from Page 4
to keep assembly lines humming.
" One of the key mitigation tools that
we have at our disposal is the introduction
and the ramp of the Enduro
drive unit this year, which unlocks a
new secondary supply base of our
power semiconductors within the
plant, " McDonough said at the Bank of
America event, according to a recording
posted online.
Enduro production
Rivian introduced the Enduro motor
earlier in the year on EDV vans it
POLESTAR
CPO programs help
raise bottom lines
continued from Page 4
" absolutely amplifies " awareness of the
young brand.
" We're opening the aperture for customers
who wouldn't traditionally be a
Polestar customer because of affordability
or how much they are willing to
budget for a car purchase, " he said.
STICKER
Paying over MSRP is
'a much bigger lift'
continued from Page 8
Murphy Ford in Chester, Pa., thinks it's
possible dealers who charge above
sticker might undercut their service
department.
" I could see how a customer would
feel that way ... 'If they're overcharging
me because [of] supply and demand,
they would do the same in service,' "
said Shabe, whose store doesn't exceed
sticker price.
Mercedes-Benz of Edison in New
Jersey doesn't charge above sticker.
But General Manager Doug Wells
doubts that retailers who price above
sticker would need to worry about
their service department losing business.
The
negative sentiment found by
GfK reflects consumers shopping outCertification
costs
CPO vehicles cost dealers $1,395 to
certify and carry a two-year unlimited-mile
factory warranty on top of the
remainder of the original four-year
new-car coverage. They receive complimentary
scheduled maintenance
side their market, rendering the issue
moot, Wells said. A customer who
searched the country for a pickup
truck during an inventory shortage
found one in New York City and traveled
there to buy it at a $5,000 premium.
" They weren't gonna service the
car in New York anyhow, " he said.
Powell said he doubts customers
would forgo a particular automaker's
brand because of a dealer's pricing. He
likened it to a customer who quits patronizing
one McDonald's perpetually
lacking milkshakes in favor of another
location in the chain.
" They're not gonna stop going to McDonald's, "
he said.
GfK said 47 percent of shoppers in
December paid sticker price for a vehicle,
while 34 percent paid more and 19
percent paid less. More recent figures
from J.D. Power indicate 29 percent of
vehicle shoppers were still paying
more than sticker price in February.
Kenar told Automotive News that
paying sticker price doesn't engender
the year-earlier period amid prolonged
macroeconomic headwinds.
CarMax's cost cutting continued and
included measures to better align
marketing spend to sales.
The company also reduced staffing
levels through attrition in its stores
and customer experience centers -
measures it also reported taking in its
third quarter - and limited hiring and
the use of contractors in its corporate
offices, CFO Enrique Mayor-Mora said
during the call. A lower corporate bonus
accrual also contributed to CarMax's
decrease in overall expenses in
the quarter.
Weak sales offset
Sharon Zackfia, a research analyst
for William Blair, wrote in a research
note last week that CarMax's curtailed
expenses, plus a lower tax rate in the
quarter, more than offset weaker-than-expected
sales and income
from CarMax Auto Finance, the retailer's
captive finance unit. Income from
makes for Amazon, McDonough said.
" Our Enduro drive unit launched on
time and is ramping according to
schedule, " she said.
As the Enduro production line
ramps up at Rivian's Normal factory,
the automaker will have enough capacity
to begin introducing them in its
consumer vehicles later in the year,
McDonough said.
The new drive unit is also key to the
development of more mainstream vehicles
on a new R2 platform starting in
2026 at a future factory in Georgia, Rivian
executives have said. The R1T
starts at $74,800 with shipping, and the
R1S starts at $79,800 with shipping.
Rivian has said R2 vehicles will be significantly
less expensive.
Rivian is now offering the R1T and
R1S for preorder in two Enduro configPolestar
will launch a digital marketing
campaign in June to help jumpstart
the CPO program. Dealers will list
the certified inventory on the company's
website and on third-party carshopping
sites.
that unit tumbled 36 percent to $123.9
million.
And CarMax executives said they
will continue to look for ways to save.
" As business returns, we're heavily
focused on finding efficiencies, " Nash
said.
CarMax also will focus on initiatives
to " improve experiences for our associates
and customers, " Nash said.
Examples he provided included leveraging
data science, automation and
artificial intelligence to make it easier
for customers to complete key steps in
a transaction on their own. CarMax also
is building digital tools to help support
customers as they shop and buy,
and the tools are expected to drive the
retailer's online sales and make it easier
for customers to choose the company's
express pickup option, he said.
That option " offers customers the
ability to complete their transaction at
one of our stores in as little as 30 minutes
and represents a win-win opportunity, "
Nash said. " Our research
urations: dual-motor, all-wheel drive
with 600 hp and a performance version
with 700 hp that is unlocked
through a software upgrade.
" Our dual-motor awd punches well
above its competitive two-motor awd
weight class, making it a strong addition
alongside our flagship quad-motor
system, " Rivian says on its website.
Ford says its electric F-150 Lightning
pickup has up to 580 hp from a dual-motor
system when paired with its
extended-range battery.
Dual-motor setup
Rivian is offering most configurations
of its electric pickup and crossover
with only the dual-motor setup.
For example, the Enduro motors can
be combined with three battery sizes on
the R1T: standard pack, with 270 miles
during that period.
" We want customers to have the same
confidence in CPO vehicles as they
would with a new Polestar, " Hembrough
said.
The program will also help ensure
that used Polestars remain in the
brand's franchised dealer network.
" We've seen Polestars end up at offbrand
independent dealers, " Hembrough
said.
" We know that we have lease returns
coming back into the marketplace, so
we might as well get in front of this rathshows
that customers love this experience
when utilized, and it will enable
us to lower cost over time. "
New initiatives on the wholesale side
of CarMax's business include artificial
intelligence-enhanced condition reports
and proxy bidding capabilities,
Nash said.
About 14 percent of CarMax's retail
vehicle sales in the quarter were online,
up 3 percent from the year-earlier
period; 52 percent of retail vehicle
sales were omnichannel, down 3 percent.
Omnichannel
refers to technology
and processes aimed at providing a
seamless buying experience for consumers
whether they shop online, instore
or both.
CarMax bought 262,000 vehicles
from consumers and dealers in its
fourth quarter. It said 247,000 of those
vehicles were purchased from consumers,
down 24 percent year over
year. The remaining 15,000 were
sourced through dealers, up 4 percent.
of range; large pack, with 350 miles of
range; and max pack, with 400 miles of
range, according to Rivian's website.
The quad-motor setup - an $8,000 option
- can be paired only with the large
pack for 328 miles of range.
Rivian customers who had already
preordered the quad-motor setup with
the max pack will have their orders converted
automatically to the dual-motor
configuration and receive a price reduction,
Rivian said in a blog post.
" The R1 quad-motor vehicles continue
to represent our highest-level offering
for performance, and the dual-motor
offering is complementary to
it, broadening choices for customers, "
a Rivian spokesperson said. The automaker
also plans to offer the quad-motor
option with the max battery pack
sometime in the future.
er than working reactively. "
CPO programs boost transaction
prices and sales turnover, helping dealers
raise their bottom lines.
Profitable business
According to Cox Automotive, dealer
profit on a premium-brand CPO vehicle
was up to 6 percent higher than on a
non-CPO vehicle in 2022. Transaction
prices were about $1,650 higher than
for noncertified cars, while CPO vehicles
sold 10 days sooner.
Haiken said that it takes time for a
Still above sticker
Average transaction prices on new vehicles have exceeded
automakers' average sticker prices for more than a year but drew
within $95 of sticker in February, according to Kelley Blue Book, which
incorporates general incentives into its calculations.
AVERAGE TRANSACTION
PRICE
AVERAGE
STICKER
Feb. 2019
Feb. 2020
Feb. 2021
Feb. 2022
Feb. 2023
$37,320 $39,418
$38,408 $40,766
$41,365 $43,019
$46,297 $45,347
$48,763 $48,668
the same backlash as paying above
sticker.
With paying above sticker, she said,
" there's a much bigger lift " in negative
feelings.
Millennials charged more
Consumers in some demographics
are even more likely to have bought a
DIFFERENCE
FROM STICKER
-$2,098
-$2,358
-$1,654
$950
$95
vehicle for more than the manufacturer's
recommended price.
Forty-three percent of millennials
were charged more than sticker price
on their last purchase, the largest proportion
among any age group studied,
GfK said. With millennials making
up one-third of the consumer
base, they are not a generation that
The company opened five new retail
locations in its fourth quarter: Chicago;
Indianapolis; Asheville, N.C.; College
Station, Texas; and Amarillo, Texas.
More
stores planned
CarMax operated 240 stores as of
Feb. 28. It plans to open five more locations
in fiscal year 2024, including
two more in the New York City metropolitan
market and its first off-site production
facility near Atlanta, Mayor-Mora
said.
The plans for continued expansion
underscored an optimistic outlook
given by Nash despite the used-vehicle
market's recent headwinds.
" Over our nearly 30-year history,
we've navigated many challenging environments
and have emerged stronger
each time, " Nash said. " This environment
is no different, and I'm confident
that the actions we are taking will
enable us to drive robust growth as the
market improves. " a
Rivian has set a production target for
this year of 50,000 vehicles, including
the R1T, R1S and EDV commercial
vans. That's about double last year's
output. Rivian does not break out production
by vehicle.
For the first quarter, Cox Automotive
estimated R1T deliveries at 6,213, R1S
at 552 and EDV vans at 1,181.
Rivian no longer publicly discloses
its preorder backlog but said last year
that it had more than 114,000 preorders
for the R1T and R1S in the U.S.
and Canada as of Nov. 7, 2022. It also
has a long-term order from Amazon
for 100,000 EDV vans.
As part of its push toward greater
vertical integration of parts, Rivian in
February switched to an in-house designed
audio system in place of a
third-party system. a
CPO program to impact vehicle pricing.
In
the early days of Volvo's CPO program,
there wasn't a discernible price
delta between its certified and noncertified
vehicles, Haiken said. But over
time, CPO Volvos commanded nearly
$4,000 more than noncertified ones.
" Without a profitable CPO business, a
dealership doesn't make money, " Haiken
said.
" It helps lift residuals, helps with the
leasing and helps us sell cars a second
and third time. " n
automakers or dealerships " want to
disenfranchise, " Kenar said on the
webinar.
Forty-eight percent of households
earning more than $150,000 also paid
above sticker price, according to GfK.
For millennials and affluent consumers,
" retailers really want to think
twice about these market adjustments, "
Kenar said.
Vehicle prices began to rise above
sticker in May 2021, when the average
shopper agreed to pay 100.3 percent of
the manufacturer's suggested price for
a vehicle, according to J.D. Power.
However, incentives kept a customer's
actual bill from exceeding sticker price
until October 2021, when buyers were
purchasing vehicles for 104.7 percent
of the manufacturer's suggested price
and paying 100.5 percent of that after
incentives.
In February, the average vehicle sold
for 102.8 percent of sticker, 100.1 percent
after incentives, according to J.D.
Power. n
Automotive News - April 17, 2023

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