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CarMax (KMX) Disposes New-Car Business With Sale of Toyota Store

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CarMax (KMX - Free Report) recently exited the new-vehicle retail business with the sale of the CarMax Kenosha Toyota new-car dealership to the Rydell Company.

The decision to divest its new-car dealership franchise was made by the used-vehicle retailer to enable it to continue focusing on its core business of delivering an exceptional used-car buying and selling experience.

Haig Partners — the leading buy-sell advisory firm to higher value auto, heavy truck and recreational vehicle dealers — served as the exclusive sell-side advisor for CarMax in this transaction as well as in the previous sale of CarMax Laurel Toyota.

What Triggered KMX’s Decision to Exit New-Vehicle Business?

In February, CarMax, America’s largest used-vehicle retailer, announced its decision to exit the new-vehicle retail business after 27 years of experience in the same. This was followed by the company dumping its last two franchised dealerships, both Toyota, to specialize in used-car sales.

Over time, CarMax has witnessed a decline in the new-vehicle sales. The coronavirus pandemic, which rattled the economy in 2020, has only further affected the new-car sales. The pandemic also boosted the used-car sales, and made it imperative for automakers to facilitate their remote and online sales to remain competitive.  

Thus, amid the changing scenario, CarMax shifted gears to concentrate entirely on its used-vehicle business and implement a digital platform for online car sales. The company expects to grow its market share of the national used-auto market of 0-10 years old cars to more than 5% by calendar-year 2025.

At the end of 2020, the auto retailer rolled out its new omni-channel retail platform. The company’s omni-channel offerings provide a personalized multichannel experience, thereby improving the shopping experience of the buyers. The seamless integration of a world-class in-store experience and an online experience gives the company the largest functional market within the used-car industry. The new technology allows customers to seamlessly shop in the physical CarMax stores or online for an easy and enhanced buying experience. Omni-channel remains a critical component of the company’s long-term strategy and is likely to boost revenues in the future.

The omni-channel platform enables the company to serve its core customers on their terms. Ship-to-home next day, curb-side pick-up option, buy online, pick-up in stores and commercial customer ordering are picking up pace, driving traffic to the company’s online site.

Though CarMax entered the business of new vehicles in the mid-90s, by 2003, the company had started to sell off those locations. By 2006, CarMax had only six franchised stores remaining. In 2016, CarMax had four new-car franchises but sold two of them that year. As of December 2020, CarMax had 220 used-vehicle locations in the United States aside from the two Toyota franchises, which it sold in 2021.

With the divestiture of the last Toyota store, CarMax has now completely disposed off the new-car business. Moreover, this move highlights the decision of the leading auto retailers to sell dealerships that do not align with their future growth strategy.

CarMax, peers of which include Advance Auto Parts (AAP - Free Report) , O’Reilly Automotive (ORLY - Free Report) and AutoZone (AZO - Free Report) , currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.