The key challenge facing CarMax is the threat to its continued rise in the future. This is based on uncertainties raised by the questions like how it could effectively scale its business while maintaining a steady supply of used cars and profitability. It is also faced with how it will survive without its competitive edge given by data advantage. Further, information systems have become cheaper making it easy for the competitors to duplicate it, whether it should reconsider its decision to leave the new car market and how wholesaling fits into its future plans. The challenging economy with unprecedented recessions and competitors are other major challenges that CarMax cannot ignore.
External Analysis, the Industry, and Economic Environment
The PESTEL analysis is a framework or tool through which marketers analyze the external marketing environmental factors affecting a business. Its results are then used to identify the strengths and weaknesses and hence prepare a SWOT analysis.
Competitors are the major macro environmental factor affecting CarMax. It has however been able to stay above the competition by having very good policies like its comprehensive data program, extended services, pricing of their cars, smooth reliable operations, and an efficient management team with in-house trained personnel.
The other major external factor affecting CarMax is economic crisis arising from recessions. During the 2008-2009 economic crisis, CarMax’s growth slowed and profits dropped but unlike some of its competitors, it was able to spring back and resumes a steady growth. Other than Honda, it was the only other automobile company to post profits during this period.
Legislation regulating sale of both new and used cars also affects CarMax and the fact that these legislations differ from state to state complicates this issue. CarMax has however been able to comply with these regulations without any listed breach of the laws.
Porters Five Forces Analysis
The five competitive forces analyzed by Poters Five Forces analysis are used to identify the strengths and weaknesses of the business and include:
Threat of new entrants into the industry
Power of suppliers
Power of customer
Threat posed by substitute products
So far, CarMax has been able to stay above the competition with some of them not being able to withstand the challenges facing the car trade and folding up. New entrants are hindered from entering the car market by high initial costs and the fact that returns are not immediate. CarMax derives about half of its supplies from wholesale auctions and the other half from customer trade-ins both of which are reliable sources of its cars. CarMax has a customer focused business model aimed at giving the customer the best deal at the best price, which has endeared it to the customers hence its continued growth and profitability. The substitute to what CarMax offers is new cars but this is not a threat to its market share as there will always be people who cannot afford the new cars or prefer older models offered by CarMax especially with the challenging world economy.
SWOT is an acronym for strengths, weaknesses, opportunities, and threats to a business. CarMax’s major strength was its being able to identify a niche in the way cars were being sold and how customers wanted to buy them. Its retail and management skills from Circuit City were also a major strength for CarMax. Its ability to adapt to different economic situations, growth, and expansion potential are other strengths exhibited by CarMax. Its major weakness is lack of diversification in product and the fact that its customer experience remains the same except that it is faster because of application of technology. Opportunities for CarMax lie in the fact that a lot of the used car market is untapped both within the United States and outside which it can tap by franchising. The biggest threat is the possible rise of its competitors because of information systems becoming cheaper hence making it lose its competitive edge given by its wide database.
VRIO an acronym for Value, Rareness, Imitability, and Organization
CarMax was able to identify the niche in the used cars market and had the capability and resources to fill this gap. Its management and retail skills were its biggest resource. Shareholder investments and profitability provided the needed capital base for growth and expansion. This created value for the firm and its ability to neutralize any threats.
The used cars market is described as having a fragmented competitor base and there was no strongbox player who was successful in it.This meant that its control was in the hands of a few and CarMax was easily able to penetrate it.
CarMax was able to come up with a very unique and customer focused business model which emphasized a broad variety of popular merchandise at attractive prices, with economies of scale which it copywritted protecting itself from imitators. The company sued Republic for copyright infringement successfully and it was awarded $50 million.
CarMax’s top management had the appropriate skills and a vision that employed the best principles that enabled it to flourish in the used car market. This enabled it to expand profitably hence capture value.
CarMax’s biggest strength is its business model coupled up with its visionary management and a big capital base that enables it to grow and expand. Its major weakness is lack of diversification both in terms of product and customer experience. Its opportunity lies in the fact that the market is still not fully serviced with room for growth and the fact that it is still fragmented with few competitors. Its biggest threat is the new digital age where information that was only available from them can now be accessed elsewhere diminishing its competitive edge.
CarMax could review its decision to stop the sale of new cars. It could use its establishment and already available outlets to negotiate for dealership deals with car manufacturers. This could include both retail and wholesale sales. It could also diversify its products by opening a spare parts department, services, and car repair department that is not just limited to its trade in customers but is open to the public.
CarMax could also franchise its business model to other businesses both within the United States and globally.
In an opinion, CarMax should apply a blend of all these remedies with due consideration of the already available resources and costs in a way that maximizes profit and its competitive edge for its growth to be sustainable. This will ensure that it retains its position as the top car seller.