Carvana vs CarMax: Comparing Operating Models

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You could use a nine-car hauler, for example. However, the sellers have the discretion to recondition the cars before the auction.

CarMax, however, will never purchase a frontline ready car. This decision is based on four variables: cost, quality, speed and safety. When they factor in safety, it’s not just about the safety for their employees to do the work, it's the safety for their customer. They won't waiver on safety, and that's why they would never allow it unless CarMax worked a deal with them and was co-located on those properties. And it was CarMax employees following CarMax processes, using CarMax resources to recondition those cars.

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I noticed they had a Tesla-only lane that was even faster, at about 20 seconds per car. It seems like the larger buyers do most of their inspection work ahead of time.

So, the moment that hand goes up for CarMax is when the seller gives the auction block the green light to accept the bid on the car, even if it's below what they started at. This is because they know they can sell many cars to CarMax.

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Before we move on, I'd like to clarify something. If a large-scale company like Carvana were to fill up its capacity, what kind of advantage do you think they would have over independent buyers at auctions? They bring millions of dollars to an auction and can buy unsold vehicles. They also get first choice. Would the advantage be around $200, $500, or $100 per car?

I would estimate the advantage to be around $500 per car.

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