How a Florida Tech graduate in Melbourne helped CarMax transform an industry

Thank you, Dr. McKay. Of all the introductions I've had, that one was the most recent. I just came up with that one by the way while I was in there. I want to thank Allen Smith for sponsoring this lecture series. I want to thank the school for having me. I really appreciate it. All the board of trustees here, Tim Wakefield, who's had the same academic goals as I did when he was here, which is stay eligible. I don't think he made it all the way through with his eligibility, but I squeaked by. I do want to say that the time I spent getting my undergrad here was the best six years of my life. It's actually a true story. I have lots of my family here: my aunt and uncle Jim and Sue, my mother and father, Lord John and Maureen, my wife Mary, who also went to Florida Tech, aerospace engineer grad, basketball player. I see some familiar faces in the crowd. Bill Jergens, Bill has been here, let's just say, a while. I remember when I got here in 1984, I thought, 'Wow, that guy's been here a long time.' Where is John Reynolds? Is he here? Well, he said he was coming, the women's basketball coach who was also Mary's coach at the time. I'll tell you a little bit more about him in a second. Wayne Swearengin, Wayne is the first person I worked for in the car business. I'll give you a few more details about Wayne also momentarily. So what I'm gonna do today, I'm gonna tell you a little bit about CarMax. Oh, I have some CarMax teammates here with me. Bill McChrystal, also a Florida Tech grad, has been working at CarMax for 20-plus years, correct? Bill and I worked together a long time, back when we were pinching pennies and first getting the company started, sharing hotel rooms with three and four guys. I remember one time me and Bill, another guy, were sleeping in some dump of a hotel room and we drew straws for the bed, which Bill lost, so he slept on the bedspread on the floor. And I can still remember him on the floor begging for a pillow. But another Florida Tech grad who's done a great job at CarMax, Debbie Sharp, is here. Also from CarMax, is Donna here? Donna's late. She's never late, but she's late for this. I bet you people thought you'd never have to hear me speak again. So I'm gonna tell you about CarMax. I'll tell you who we are today. I'll tell you a little bit about some of the things that we've accomplished, and then I'll tell you a little bit of my story and how I ended up at CarMax. And I'll talk a little bit about where we're going in the future, and then I'll open it up for questions. First of all, who in here has a FICO score above 600? Raise your hand. We just opened a store in Palm Bay, although only six people raised their hand there. We maybe can take care of the rest of you, I'm not sure. So if you don't know who we are, CarMax is the largest retailer of used cars, it says, in the world. Actually, we sold over 750,000 cars last year. We have 200-plus stores in 41 states. The year that just ended, we did a little over 18 billion in revenue. This year, we'll eclipse 20 billion in revenue. We started with zero. We started without a name. I'll tell you a little bit more about that. Last year, we sold about 750,000 cars. What you may not know is we also run a wholesale business. So if you bring your car to our store, we'll make you a cash offer regardless of whether you buy a car from us or not. If it doesn't meet our retail standards, we wholesale that car to other dealers. So we run a chain of auctions across our stores. We're the largest chain of auto auctions, second largest chain of auto auctions in the United States, and last year sold almost 450,000 cars. And yes, we buy any car. Who drives the crappiest car in here? Any students here? What do you drive? How many miles on it? That's the one car we won't buy. Billy, what about you? How many miles? We'll buy that. We don't care. We'll just sell it to other dealers like Wayne, who will then stick it on some poor unsuspecting customer. So that's our wholesale business. Last year, that was about two and a half billion in revenue. Our wholesale business could be a separate publicly traded company, that's become so big. You see 12.5 billion in managed receivables. We have our own finance arm called CarMax Auto Finance. We are about the fifth largest originator of used car loans in the country. CarMax Auto Finance was started as kind of a side thought for us. When we first opened our first store in Richmond, we were part of Circuit City. Circuit City had a credit division. They thought we would write a few loans. That's how that started. And we're now one of the top ten originators of used car loans in the country and are collecting on 12.5 billion in receivables. We have over 25,000 employees nationwide and we're number 174 on the Fortune 500 list. A few of the things I'm most proud of is how we've been able to treat our employees and some of the things we've been recognized for. If you've ever heard of the Fortune 100 Best Companies to Work For, we've been on that list now for 15 years in a row. I'm pretty sure we're the only used car dealer ever to make that list. We've also won a number of other best workplace awards, as you can see here: Best Workplace for Millennials, Best Workplace for Diversity. We do a lot of stuff with the military and Hiring Our Heroes, Best Places to Work for the Elderly, and won the LGBTQ, it's a tongue twister, Equality Award. And we've won the Training Top 125 for a number of years. So I think that's probably one of the things that I'm most proud of. And a lot of people say, 'You know, what are some of the things that you did early on to take care of employees?' And some of the stuff was just that we weren't from the car business when we started. And one of the ones I always get is, I remember we opened a store in South Florida and I came down to South Florida. I was sitting with some automotive technicians and they were like, 'Wow, that was a really good idea you guys put air conditioning in the shops. Like, how'd you think of that?' And I was like, 'Well, there are people in there, so we put air conditioning in there.' But it was something very early on that we got a lot of credit for, and we were just like, 'Well, why would you not put air conditioning in there?' But it turns out that's just something that automotive technicians didn't have, nor do they have a full benefits program like we provide, our employee stock purchase plan. So we were able to do that for a number of employees. One of my favorite stories around that is, Tampa, Florida is our fifth store that we ever opened. And I went there a number of times over the years, and I don't, it had to be 15, 20 years after the store opened, I was down there and sitting with the technician there who has been there forever. I remember when we hired him, and he told me that he had a million dollars in CarMax stock because he had done the Employee Stock Purchase Plan. He had never sold a share of stock the whole time that he owned it. And you would never suspect how the guy, and the guy was so appreciative, and it's just something that I'll never forget. We're also very active in the community. We've given away more than 60 million dollars in the communities where we all live and work. We do that a number of different ways. We have some national partners you can see up here. KaBOOM! is a great organization that builds playgrounds for underprivileged kids. Our commitment there is we provide them funding, we provide over a hundred volunteers. We get there at seven or eight o'clock in the morning, we refurbish an area that really needed it, replace the playground, and it's all CarMax volunteers. And it's one of the more rewarding things that I've been involved with and something that the company will continue to do going forward. We do matching gifts with all of our stores. Any one of our employees donates money to a charity of their choice, we match that dollar for dollar. If they volunteer, we match that with $10 per hour volunteered. In the month of June, if you do a team builder, we write $500 to that charity. In the month of June, we double that to $1,000. 100% of our stores have committed time to volunteer over the last several years, and it's just another part of, you know, we're all over the country. We're in California, we're in Texas, and it's very difficult to pick what's important to your employees. So we'd rather have them pick on their own and then we can help them support it. All right, I'm gonna tell you a little bit about my story and how I ended up here. So my father was a basketball coach at Stonehill College. Anybody ever heard of that? Maybe, wait, 'cause he's lived in Boston. And when I was growing up, I was playing basketball. I wanted to play for my father in my hometown. I ended up going to a school called Bryant. Three people. Things didn't go well for me at Bryant. I didn't get very good grades. I kind of got in a lot of trouble. I was on probably every probation the school had, and me and Bryant decided to break up. It wasn't a great fit for either side. Actually, I could have gone back, I just wouldn't have been allowed on campus other than for practice and for class. So my father, at the time, I didn't want to play for my father in my hometown. My father got the job here at Florida Tech, became the basketball coach. I transferred down. Dr. McKay, you must have raised your standards. I have no idea how I got in the school. None of my grades transferred, so I started, I felt like I was a whole new freshman again. It was kind of awesome. I redshirted for a year and then played three years here for my father. My father's in the Athletic Hall of Fame. My brother played basketball here. I met my wife here, who was an aerospace engineer, made her one of the first female aerospace engineer graduates in the school. Let's give her a round of applause. [Applause] So a little bit about my story. It's a pretty typical story, one you might have heard before. It's a boy meets girl, boy accidentally gets girl pregnant, boy out of desperation becomes a used car salesman. That's kind of my story. I came to school here as a business major. Any students here? Any business majors? You guys realize how good you have it, right? You actually have a building. We went to school in trailers behind the gym. You remember it, that's why you're laughing. He's been here a long time. The school called it an annex, though. They didn't want us to think we were going to class in trailers. But when I left the airport, I saw a bunch from over at Tropical Haven, that active adult, so I'm pretty sure they were trailers and they've been repurposed. And I came here and I wasn't kidding about my academic goals, which was a 2.0. That's all you needed to be eligible. I remember one semester I took racquetball, tennis, and sailing. Each one of them was worth one credit, so that together counted as one class. And then I took three other classes and I did terrible in all of them, but it got me through one semester and then on to the next. After five years here, I still didn't have a degree and I had to go back to school some more. So I was an assistant coach on the men's basketball team, and that's when the incident in question happened regarding my girlfriend, now my wife. I don't want to mention it again because my mother-in-law is here and she's still kind of a little sore about it, I think. She's probably over it by now, hopefully. And I never really knew what I wanted to do. I know nobody goes to college and says, 'Someday I'm gonna be a used car salesman,' at least not me. I thought I'd go back to Boston and build houses, which is what I used to do before then. I met Mary and I found out she was an aerospace engineering major and I thought, 'Hey, she's probably gonna get a good job, I could just leech off of her.' So that was my plan, and it didn't quite work out that way. And then I met a guy, Wayne, sitting over there, playing basketball. And when you look at Wayne right now, I know you're thinking, 'That guy never played basketball,' and you're close to being right. But luckily for me, he was a better wholesaler than he was a basketball player. And Wayne offered to teach me the car business. My first year in the car business, I sure do, Pat. Wayne's shop, after I met him on the basketball court, and this is it. And I told Wayne I had this picture and I knew he was gonna be excited about it. I went over there and took this picture. So this is the actual shop that we started at. I don't know if Wayne, you owned it or you were just squatting. And you can see the barbed wire points out. If you knew the people that we worked with, you would probably think it should have pointed in. The building you see on the right was actually a house that Wayne bought, and then we put the fence around the house. But it wasn't zoned for commercial use, so when the Melbourne inspector would pull up, we would all sit in the living room and act like we lived there because we weren't supposed to be running a business out of it. It actually was called 'The Zoo.' We had a sign called 'The Zoo' there. Across the street was a body shop that Wayne and his brother ran, and we started wholesaling cars. Well, he was already doing it. I started wholesaling cars out of there. I worked probably 80 hours a week, six days a week. Wayne's kind of a hard driver, and for that, I was rewarded with a salary of $18,000. Remember, I had a wife and a child. And then at the end of that year, Wayne fired me and said I wasn't dedicated enough and I would never make it in the car business. And Wayne, it's a true story, he took me back when he realized he would have to hire five guys to replace me. So we were wholesaling about 400 cars a month out of there. I know it doesn't look like it, but it was an incredible machine. I learned a lot about the car business from Wayne. One, I learned anybody you meet at the auction is trying to screw you, so don't trust anybody in the car business. I also learned inventory turns are very important. It's probably the most important lesson I learned. It turns out cars are a lot more like bananas than they are red wine, and they don't age well, and you got to get rid of them very quickly. And Wayne had a saying that stuck with me my whole career, which was, 'If we paid for it, we owned it too long.' And you used to say that, you might not remember, you actually probably still live by that motto. So I think he lives like that with his houses too. So we saw we were selling about 400 cars a month out of there, and one day we got a call, or Wayne gets a call, and says, 'Hey, there's these guys from up north and they want to look at the dealership. They want to look at your site. They're gonna open a used-car store and they're gonna sell, they say they're gonna sell 400 cars a month,' which is hilarious. Nobody sells that many cars. By the way, we do. And I was the guy that was supposed to show them around. And it happened to be a Wednesday, was the only day that I was in Melbourne. And I drove up to, we worked for Rathmann Chevrolet, so we used Rathmann Chevrolet's money. I drove up to Rathmann Chevrolet, had these three guys following me back. I was wearing shorts and a Florida Tech practice jersey and, I don't know, unlaced high tops and talking on one of those big giant Michael Douglas phones from, what was that movie, Wall Street. And I thought I was pretty cool, except that they were like, it was like 60 cents a minute back then. So if somebody called you about a car, you'd be like, 'How many miles? What year is it? 12 grand,' and then hang up as fast as you could so it didn't cost too much money. My phone bill was like $1,500 a month and I was 26 years old. So, and Wayne didn't help out with that bill at all, so I had to pay it all myself. So I took these guys back and I was going to show them around. Well, they're all wearing suits, so I thought, 'Well, they probably have money.' I mean, I don't have a suit. They said they're gonna sell 400 cars a month, which is ridiculous. And then as soon as they started asking me questions, I realized they don't know what they were talking about. They don't know anything about cars. Well, I got paid commission, so here's some guys who look like they have money, they say they're gonna buy a ton of cars, and they don't know what they're talking about. That's like the trifecta for a commission salesperson. So I thought, 'Man, I'm gonna stick it to these guys. I'm gonna sell them a whole bunch of cars and I'll never see them again because they'll be so upside down they won't know what to do with themselves.' Well, I walked them around and we had a printout. We had everything, everything tracked, all of our dollars spent. We didn't make a lot of money per car, so it wasn't really a big deal to show them the bottom line. It was just a few hundred dollars a car. What I tried to convince them is if they were gonna buy cars, they didn't need to go to the auction, they didn't need to do all this other stuff, they could just buy cars from me. We walked around there, we went in that little house there on the right. We kicked, that's right behind Burger King on Route 1. You know, if you go to the end of 192 and take a left, you know where the Burger King is, it's right behind it. That building was full of Burger King bags. We kicked aside some Burger King bags, I sat down with these three guys and I tried to convince them they should buy cars from me. It turns out it was a guy named Rick Sharp, who was at the time the CEO of Circuit City, another guy named Austin Ligon, who was a senior vice president of corporate planning, another guy named Mark O'Neil, who was going to be someone they were thinking about hiring to come into the car business. The reason they were there, they read an article in a magazine that said that Rathmann was the largest seller of used cars in the country, which wasn't true. They saw the 400 cars a month, which were wholesale. So when they called down to ask if they could come check the place out, I guess they talked to Rathmann Jr. He should have said, 'Oh, we don't actually sell those cars,' but he said, 'Yeah, come on down.' So they flew down there to see this big used car operation that turned out to be that. Imagine their surprise. And I showed them around. They stayed for probably an hour and a half. They started to ask me a lot of personal questions. They asked me how much money I made, asked me what I did, all kinds of stuff. And then they left. I didn't think I'd hear from them again. About a month later, I get a call. 'Hey, you know, we're those guys.' And I said, 'Oh, you want to buy some cars?' And they said, 'No, we have a job opportunity we want to talk to you about.' I was like, 'Really?' They said, 'Oh, we're a Fortune 500 company. We're gonna get in the car business. We're gonna sell a bunch of used cars.' And I asked them where they're based, and they said, 'Richmond, Virginia.' And I was like, 'I'm from Boston. I'm not gonna really blend in in Richmond. I think they're still fighting the Civil War up there.' And then I moved there and turns out they are. I hope nobody hears from Richmond. And so I was kind of, said I was interested. And they said, 'Listen, we'll send you a plane ticket. You fly up here. If it doesn't work out, you can go back to that.' Yeah, I mean, so I flew up. I spent some time with them and it was Circuit City. And they had this idea, they didn't really have a lot of the details worked out. I moved to Richmond with my wife Mary and our infant son, and I was one of the first five employees there. My employee number is actually one, but I think it's because they gave it out on height. So it was me, the four other people there weren't quite as tall as me, so I got employee number one. But it was really a whole group of us, and we didn't have a name, we didn't have a site, we didn't have, all we knew was we were gonna try to sell cars and that we weren't going to negotiate. That was pretty much kind of the guiding principles for the company. You know, we got our colors. Anybody ever driven by an IKEA? We drove by IKEA, we're like, 'Whoa, look at that.' I think people think a lot of research went into some of this stuff when it didn't. We have a five-day money-back guarantee. I think we just moved it to seven, but we have a five-day money-back guarantee. You know, we got that. We called the DMV, we said, 'How long can we hold the paperwork before we have to eat the tax?' And they said, 'Five days.' Really? Five-day money-back guarantee. But we started with these kind of founding principles: no-haggle, transparent pricing, all of our prices on every car, low-pressure sales environment. I think we're one of the only car dealers that doesn't pay a commission based on the profit of the car sold. That's strictly a volume-based incentive. Huge selection of cars. We have over 60,000 cars. If you download the CarMax app today, you can see all of our cars. By the way, we'll ship any car here to Palm Bay, car of your choice. Oh, I forgot, you people don't have credit. Never mind. And the money-back guarantee that I mentioned. If you look at those four founding principles, they're exactly the same today as they were 25 years ago. A lot of these things, most people said were not going to work in the car business, particularly the no-negotiation part. We don't just not negotiate on the sale price of the car, we don't negotiate on the trade-in. We don't really even do trade-ins. If you come in, we make you an offer. We don't change that offer whether you buy a car from us or not. Credit, we don't have a finance manager in our store, which, have you ever been to a car dealer and sat down with a finance manager? I know I have some car dealers here in the audience, so I won't be too cruel, but we don't even have a finance manager in our store. The person you meet at the door takes you through the entire process, and the finance piece is also not negotiated. So it's kind of presented to you menu-style. You pick the payment that best fits your budget. We don't negotiate that. To show you we're giving you a good deal on financing, you can go get financing somewhere else within three business days and we'll unwind that transaction for free with no charge. And that's something we started in 1993 that we still do today. So I think when you put all this stuff together, at the time it was pretty revolutionary. This is a little bit of a busy chart, and I've noticed as I've gotten older, I can't read charts. Lucky for me, I live that chart, so I can tell you a little bit about it. So if you look here in the, Mary, can you see that? You look here, this is when we first got started. So we opened our first store in 1993. One year later, we opened our second store in Raleigh, North Carolina, right about here. Should I start over again? No? Okay, we are, sorry about that. Right about here, we were responding to, if you guys have heard of AutoNation. AutoNation is still around today, but at the time they built a big giant used car copy of us. And I mean, it was just like our store. It actually hurt when we would go visit them because they were saying that they invented the used car superstore concept, which obviously they didn't. And they started building stores all over the place. They built all these big giant stores. We had different size stores. Their stores are all the same size, enormous. And as a competitive response, we built 22 stores in 24 months off of a six-store base, and we almost exploded because of that. We weren't ready. We weren't ready to build all those stores. We weren't ready to manage all those stores. But we were building stores kind of across the street from where they were. And the good news out of that is they went out of business. So after three years, they built 43 stores, they lost 500 million dollars running home. They took a 500 million dollar charge to close them. So they lost a billion dollars in three years. And back then, that was a lot of money. You know, now with the mortgage crisis, it seems like it's nothing, but they lost a billion dollars in three years. It scared away anybody coming into the business. We stopped for a little while to get our act together right here. Oh no, where's Billy? Who handed me this thing? There we go. All right, I'll try not to do that again. So right here, we kind of took a step back and got our act together right here. Sustainable store growth. We started building at a pace of 15% of our store base each year, and we looked at other big successful retailers and how quickly they'd built and said, 'What's the fastest anybody else has really grown a national retailer without kind of the wheels coming off?' We were a profitable company at the time, we didn't wanna mess it up. So that's the pace that we picked, and we did that in this stretch right here. Things were going great. We were on pace for about 8.5 billion in sales, kind of couldn't have been going better. And this is where the recession hit right here. In about a six-month span, we lost 25% of our total revenue with no warning whatsoever. And one of the things I'm most proud of during that time is something I mentioned earlier, which is our inventory management. We were able to improve our inventory turns year-over-year and improve our margins during the time when the market on a per-car basis probably dropped by $2,500 or $3,000. We didn't do any layoffs in the company. We didn't cut back on any of our benefits. We tried to keep all of our best people. We repurposed some people, but we really had to rethink the entire company. When we came out of that, we took another pause right about here, and we refined the business once again. And we call that 'Building a Better CarMax.' Not really showing up on the sign there, but we kind of reinvented the company for, I would say, a third time, which is we refined our profitability, where we found our inventory management even better. We really worked on our reconditioning costs. We had a lot of reconditioning cost per car sold. We had a lot of inconsistencies across our stores, and we took a couple of years to really get that where it needed to be. And then we picked back up our growth again. So you can see from here to here, we're really one of the, I think, one of the best retail growth stories in the last 25 years in the United States. And it's one of the few companies that really started from scratch, started without a name, just an idea, with a bunch of really great people. So going forward, we're kind of at an inflection point for the company. If you look at what's going on in retail, the biggest retailer doesn't have any stores, Amazon. You know, the biggest transportation companies don't own any cars, Uber and Lyft. And the biggest, most valuable hotel chain doesn't own any hotels, Airbnb. So the whole way people are doing business and interacting and kind of buying anything at retail is changing. And so for us, we have to change as well. I do think that one of the advantages that we have is, one, we have 25,000 great, committed people. By the way, it's really hot in Florida compared to Boston. And two, we have an incredible infrastructure. So I think the 60,000 cars that we have, plus all the cars we have in process, are actually an advantage. Our 200-plus stores are an advantage. Our logistical network, our being able to move cars, we moved over two million cars last year, I think that gives us an advantage. But at the same time, if we can't do business with you on your phone, we can't do business with you through an app, we can't allow you to do more of the transaction at home, then somebody's gonna come along and they'll do it better than us. So we've invested literally hundreds of millions of dollars over the last three years to be able to allow the customers to do as little or as much of the transaction as they want to do from home. And we're calling it omni-channel, and it's in the midst of rollout. We just rolled out Florida, I think, a few months ago, and by the spring, we'll have it available to 50% of our customers nationwide, and shortly thereafter, the whole country. So you can do the credit up at home, you can sign up for a test drive, we'll deliver the car to your house. So we'll really do whatever the customer wants to do. But I think for the company, it's kind of another inflection point and another point where we have to reinvent ourselves. So that's what, that's where, what we're working on right now. Did I see Donna come in? Hi, Donna. Bet you never thought you'd have to hear me speak again. Thank you. So, that's kind of my story. That's where we're going from here, and I'm gonna open it up for questions. Then, oh, CarMax, oh, where the name came from? Yeah, I didn't, but at the time there were four or five of us there. We literally had a name-the-company contest. You got a set of steak knives. And a guy named, true story, we sat there and stared at a set of steak knives on the table and I just tried to come up with stupid names. And a guy named Mark O'Neil, who left the company for a long time and now, as of last week, is coming back and joining our board of directors, which is great for us. He went off and did a bunch of other things in the car business and now he's joining us again. But he's the guy that came up with the name. It's a pretty good name, I think. Anybody else? Our average car is about three years and 36, 38,000 miles. We'll sell cars much older than that, 10 years, 10 years plus. It's really a quality standard that we stick to. So we won't sell a car with over 120,000 miles, and we won't sell a car that doesn't meet our quality standards. Wholesale, we sell everything, right? So she asks, how did we do with the recalls? That's a really good question. We're not a manufacturer, so we can't fix recalls. What we want to make sure we do is be completely transparent with the customer.

So every single car that's sold in our store, the sales consultant walks you through a process where they have to show you how do you register with the manufacturer, how can you find out if that car has a recall, and we'll help you make an appointment if you have to go and get that recall taken care of. So recalls have become a much bigger story. We've kind of been dealing with them for a long, long, long time, but the best we can do is be super transparent. It's not really realistic to say you won't sell a car with an open recall. You'd be surprised how many cars on the road today have open recalls. Many of them are not really safety issues, they're just open recalls, but because of all the consumer movement around it, they're all considered safety recalls. So we don't not sell a car that has a recall, we just make sure we're transparent with the customer.

So if you guys heard that, classic car or muscle? Not really, other than we'll still buy anything and then wholesale it. So you could literally bring us any car and we make you a cash offer. If you're really into it, you probably won't like our offer too much because we're really just gonna turn around and wholesale the car. But the other thing is because we bring all these cars up to a very high quality standard, we want to stand behind them, sell them with a 5-day money-back guarantee and a 30-day warranty. It's difficult to stand behind something that somebody else has put done a lot of work to. You know, a lot of times people come in and they've lifted their car and they've changed the tires out and put different rims on it. We'd rather have the original stuff. You know what a lot of people do when they do that to a car is they narrow the market down to pretty much themselves.

Well, I think a lot of it is kind of do what you say you're gonna do and stand behind your employees. And I told a couple of stories there. You know, I think during the recession, I mentioned that we tried to keep all of our best people, but we were also in the stores all the time. I grew up in the store. You know, I started as a buyer. I was the, I went to the auctions, I was the buyer in the first store. We have a lot of great benefits at the company. We have a headquarters that has over a thousand people. We have an indoor basketball court. I have no idea who came up with that idea. We have softball fields. We have an incredible facility. And when anybody would come to me about, oh, we should do this or we should do a benefit or we should do something for the people here, I'd say, well, I'm not gonna do that unless we do it for the same thing for the people in the stores. You know, it's a tough job, retail's a tough job. You have to work nights, you have to work weekends. But I can't tell you, many people come to work for us and we say, hey, it's nights and weekends, and then after a few weeks are like, yeah, you know, it's nights and weekends, but that's when, you know, that's when customers are buying their cars. So, you know, the fact that we've been recognized so many times as the best place to work, I think says something about our company culture.

I am. One of my jobs, I worked for Cox Automotive. Yeah. So Mark O'Neill, who I just mentioned, is the recently retired CEO of Cox Automotive and all of Manheim. So if that tells you anything about our relationship, we just put him on our board. We're Manheim's, for those who don't know, Manheim auction is the biggest chain of auctions in the country, and we are by far their biggest customer on the buy side. Now, we don't take anything to the auction to sell because we run our own auctions. I look like I was dying up here, thank you. So I'd say we have a terrific relationship with Manheim, and we always have. We have from the very beginning, and it continues today. And I'm not, I'm not with the company day-to-day anymore, so I don't manage that. Bill would actually know better than I would, but we've had a great relationship with Manheim since the day we started. And Manheim also has their Cox, their AutoTrader, their Kelley Blue Book, you know, they're kind of a put together of a bunch of different entities in the car business.

Well, one of them was DealerTrack, which was Mark's, and then they bought it and they put Mark in charge of everything, and then he decided to retire, so we snagged him.

Yeah, that's a good question. I didn't bring my general counsel with me tonight, so I don't know that I'm gonna be able to answer that in as much detail. And as I also said, I'm not there every single day now, but I can tell you that everything that we do in terms of customer-facing or what we disclose to the consumer is 100 percent legal, 100 percent above board, 100 percent by the book. That process you mentioned is not quite as easy as it sounds in terms of getting recalls repaired. Yeah, if you're CarMax and you call, making a point with a car deal that hates you, you see if you get an appointment. But all I can tell you is we don't do anything that's not in the customer's best interest.

We do track it, and we do try to promote it. It's a little, it's, it's, I'd say it's probably a little bit more difficult for us to track. Remember, the car buying cycle is, used cars is every three to five years. So, you know, if we do a great job, hopefully we'll see somebody the next time, but maybe the next time they decide to buy a new car, and then maybe five years later we'll see them again. So I don't, I don't know exactly what our loyalty numbers are. I know they're very strong, but I couldn't give you an exact number. I can tell you from a, from a, like kind of like, would you recommend us to a friend? We're plus 90 percent. There's a, there's a score called, Donna, what's the score?

Which is a very, thank you, Donna. But when you look at that for us, I think it's 85 percent of our customers, we have an 85 percent score of Net Promoter, and that's in line with companies like Costco and some of the best retailers that you've, that you know, most of you are familiar with.

That's, you know, what I found is it's, things are a lot different. I have two, I have a 28-year-old and 25-year-old. They've both been out of school for just a few years, and both of them are on their third job, and not in a negative way. Like they're, they're constantly, you know, you guys don't remember when you had to like write an application for a job on a piece of paper, that seems like 300 years ago. And these kids are just, they don't think anything about changing a job or moving from one to the other to advance their career or to go do something different. And there's so many startups out there today that people are taking chances on. I think from a company perspective, I don't think anybody's got to penalize somebody for taking a chance and trying to do something entrepreneurial. And I know the school is kind of pretty big on doing some entrepreneurial stuff, and I would, I would recommend that, especially when you're younger. But probably the biggest piece of advice I would give is find something you really like to do, like love to do, because you're gonna be at work a lot, and you'll be at work more than you are sometimes with your family. And then once you're there, try to surround yourself with really good people, again, because you're gonna be there. And then try really hard. Like I know that doesn't sound like brain surgery, but I feel like that's what happened with me at CarMax, is I got really lucky with somebody else's really good idea, and I got really lucky to work with a bunch of great people.

When Circuit City was getting in the car business, they actually did focus groups and started asking people, what do you like about buying a car and what do you not like about buying a car? And actually, when they said, what do you like about buying a car, nobody really said anything. And they went, really? When you're not, like, oh, I love buying a car? The negotiation piece is something that it's kind of visceral with people, you know, that they really hate it. Like people hate sitting there and saying, well, what'll you give me for my, you know, you walk into a car deal and you say, what'll you give me for my car? And what do they say? What do you owe? What does that have to do with what your car is worth? Most people are upside down in their car. Or what are you gonna buy from us? What does that have to do with what your car is worth? And then they'll take your trade-in and then you can't find the guy and you can't get the keys back, and you know, it's just, it was something that people really despised. So from the very beginning, it was something we just said we're just not going to do it. The part on the buying cars, that was a little bit, it came along because we really, the only reason we were making a cash offer on every car was to prove that we were honest about the offer and that we weren't going to negotiate. And I worked for Wayne, and we only bought nice cars. I went to Richmond and people were pulling in and just absolute pieces of crap. I had no idea what they were worth. You know, I just guessed a hundred dollars. I literally, we started out, we started our first auction in Richmond because we started buying a bunch of those cars, and we ran an auction on site. And the way we ran the auction was we just lined a bunch of cars up in the dirt. I stood in the back of a pickup truck with an auctioneer, and we had dealers come in, and we just walked the dealers, I drove in the back of the truck, and we just walked the dealers from one car on a dirt lot to the next and auctioned off each car. And we'd be like, sold, $600 to Bob. That was two and a half billion in sales last year.

So we are incredibly consistent with pricing. I think we have 28 consecutive quarters with our margins within about a hundred dollars of kind of a target number. And we have a whole group of people that really don't do anything but work on analytics around where did we buy the car, how much money do we spend reconditioning, what was the last car we had like that, what's going on in the marketplace right now. So there's a lot of variables that go into it, and it's, and the best thing is it builds every year and continues to refine itself. But I think it's something that we're probably the best at.

I did not, you probably tell, actually, I went to, I went to a two-week class at Wharton, and it was like a, it's, I wouldn't call it a master's because it wasn't that, but it was a bunch of senior people from a bunch of other businesses and other companies. And I remember thinking, these people aren't that smart.

So again, I'm not there every day right now, so I couldn't tell you exactly what we're gonna do. But if history tells you anything, we'll do a great job during a recession. I actually hope a recession, not, not really, not for you people, but there's a few companies out there that are getting kind of building up a head of steam and they're not really making any money. And they get this, there's one company out there, I'm not gonna mention, they have a huge market cap, they lose $1,500 every time they sell a car. They literally make me sick. If this is, this being recorded, and, and yes. But I actually think when a recession hits, it's kind of the cream rises to the top. Inventory management is really difficult in a recession. Taking care of your employees is really difficult during a recession. And again, I think we're really good at it. I think we'll do a really good job again, and I think some of the less refined competitors won't do so well.

I'm, I don't know who said that, but I wish I did. That was awesome. Yeah, I think it'd probably be that, except for my wife and I, by the way, that's the best thing that ever happened to me at Florida Tech, by the way. The second one we had was on purpose. That was like two years later, then like eight years went by and we accidentally had another one. So there was another, whoever said use a condom, and then that one needed someone to play with. So Mary's like, I'm like, why don't we get the neighbors to have kids? And so we had another one 15 months later. And that second, so the second mistake, which is the third kid, which out of the four, that makes half our kids were on purpose. The third one who was not on purpose, John Reynolds was just recruiting to play basketball here, so it kind of comes full circle. I was gonna make fun of how old John was, but he didn't even show up. But the fact that he's actually recruiting our daughter is hilarious. He's at practice, yeah, right. He's known about this event for a month. You can't, what, the gym's occupied? He couldn't have practice at a different time? Okay, yeah, right, yeah.

So by the way, this is Joe Kelly, and I sold Joe cars or bought cars from Joe when I worked for Wayne. So he's one of the first people I ever did, and you were always kind to me, Joe, and I really appreciate that. We own some new car stores. We actually still own two Toyota stores. And for a little stretch of time, and then probably the mid-90s, we thought we were gonna be bigger in the new car business, and we started buying up some franchises. A lot of the things that the manufacturers want you to do around the way you run your business don't really align with the way we run our business. Secondly, like we have a Nissan store up in Baltimore, and I remember Nissan came along and wanted us to pretty much renovate the building and change our colors, and we're like, we're a CarMax who happens to sell Nissans. And they're like, no, you're a Nissan dealer who happens to sell used cars. So we got rid of them, and we don't have any plans to get back in the new car business. You know, the other thing is new cars, as you know, are a commodity, meaning they're all the same. You can't say my car is better than their car because it's not. When we recondition a car up to our quality standards, we think our car is better than the next guy's. You know, we will stand behind the reconditioning process. It took us, we spend an average of $1,500 a car getting a car ready, and we think we'll stand behind that car. We think, we think we can add value to the car. We really can't do that on the new car side. And now with the internet, everybody knows what cost is, so margins are suppressed. You have a manufacturer telling you what to do, want you to wear different shirts. I mean, we wouldn't even change our shirts, so they really didn't like us.

Yeah, you're a shrewd negotiator. Yeah. We don't, but in the early years we used, you know, there's a bunch of books that are out there that are guides. We used a book called Black Book, which is just another book. The reason we use Black Book, honestly, is because that's the book that Wayne used, and I was the first buyer, so I used Black Book. I've honestly, I've never looked at a Kelley Blue Book in my life, and we've sold 8 million cars. Now we've gotten so big, and we assess and appraise and sell and buy so many cars, we have enough data to really just use our own data. And our buyers have access to this, you know, the access to information these days is incredible. We used to go to the auction literally with a, with a yellow pad and a piece of paper, like, here's what we want to buy today, with a Black Book, and that's it. And now we are hyper-targeted. Our buyers go to an auction and they can tell by a VIN number if one of our other buyers has already looked at the car and decided that we don't want that car. So we can go to an auction and not waste our time looking at a bunch of cars that our buyers have already decided either have been in an accident or don't meet our quality standard for whatever reason. And the access to information and data now is just amazing. And then, you know, our goal is to provide it to the people that work for us at the moment that they need it.

So I don't want this to sound bad, but the good thing about CarMax is we don't care what we sell. So if people want to drive electric cars, we'll buy them and we'll sell them. And we're not attached to, you know, Joe's question earlier, that's the other part, we're not attached to any manufacturer. They can't push inventory on us. So we have an analytically driven model. If we have something on our lot that turns quickly, we'll go try to buy more of that thing. You know, electric vehicles and hybrids are still a very small percentage of sales in the U.S. People still like SUVs. You know, SUV as a category is 25, 27 percent of our total sales. But, you know, we'll sell as many electric cars as people want to buy. And one of the difficulties with some of the electric cars is not all of our shops can work on an electric car. So that's something we have to work on over time. In terms of autonomous cars, I think that's a long way off. I mean, I think it's a long, if I live in Boston, I mean, every street's one way going the wrong way. I don't know how an autonomous guy can't find my way around. So I just think it's a lot further off than people think it is. And I do think there's some issue with ownership of cars. So when I was talking about what kind of my millennial kids, they live in the city of Boston, they really don't need a car, nor do they want a car. They don't want the expense of having a car. But I think as life happens and, you know, hopefully they have some planned pregnancies in the future and they'll want to have kids, they'll want to have a car. But there, there's 42 million cars, used cars sold annually in the U.S. 42 million. We sold 750,000. We're a fraction of used car sales. So I think we can grow our business even if things started to taper off a little bit, which I don't think they will when you factor in population growth. But again, I think, I think autonomous cars are a long, long way off.

Yeah, we don't, we don't really do anything with commercial equipment or, you know, we're strictly with the kind of the everyday consumer. They take up too much space on our lots and we don't know anything about them.

Yeah, I mean, I kind of, I kind of mentioned it earlier. I think, I think work ethic is one. You know, I think when you're, although I told you I worked 80 hours a week and Wayne fired me and said I wasn't committed, so because at CarMax it's a different level of work ethic. But I would, I would flip back to find something you really are passionate about, something you really enjoy. You, you wouldn't believe how many people are miserable at work. Raise your hand. Oh, Beno didn't raise his hand. So I, seriously, I find something you really want to do, you're really passionate about, find some great people, and try really hard.

Did I grow up with Hot Wheels? Oh yeah. No, I actually don't really care about cars, which is probably good. I know, I think I wanted to be a basketball coach, but it doesn't pay very well when you have a kid, especially at Florida Tech when you're like a third assistant. So I mean, I think that I used to frame houses when I was in high school, and I thought maybe I'd be a builder someday. But, you know, life happens and priorities change, and, you know, you get an opportunity and you either take it or you don't. And, you know, moving to Richmond for me from here, from Florida, was a big deal. It was kind of a big risk, and it was going into something completely unknown. But I mean, I would recommend doing that to, you know, try something different. But I never thought, I never expected to work for a big giant company. I never, I mean, I've gotten incredibly lucky, as I said earlier. And if you knew some of the people that I've worked with, and some of them are here tonight at CarMax, you'd understand.

So I started as a buyer because, you know, there was four of us there, and my job was to be the buyer for the company that really didn't have a store yet. So I kind of didn't have anything to do, and my first job was to just start a wholesale business and start buying and selling cars. I mean, remember, we didn't have a name, so I went to the Richmond DMV. The CEO's name was Rick Sharp, so we had a company called Sharp Motors. I went to the DMV to take the dealer test to get our first license, and this is before, you know, all this automation. I still remember, I went there to take the, and I studied like crazy because I wanted to be the, I just got there, I was 27, I'm gonna go fail and we don't get the dealer license. I go to take the license and I get the book, which is like the study guide, and I open it up and all somebody had checked off all the answers in there, so I just copied it. So, so then that's how we got our dealer license in Richmond. It's still in place. And then, and then this, then a guy calls me and says, hey, um, I got a bunch of Jeeps to buy in Hawaii. I'm like, really? And I went from working for Wayne where if I was gonna go buy a Ford Escort, I would have to make sure we had enough money to pay for the Ford Escort. Now I work for a four billion dollar company with almost unlimited, unlimited resources. So when I found out that Budget Rent-A-Car wanted to sell 120 Jeep Wranglers and the price was pretty low, I called the guy on the phone, his name was Calvin Sakata, and I said, I'll buy all of them, and I'll pay you whatever it was back then, 1.2 million dollars. I'd buy 120 of them all in one shot, and I'll pay in cash. It was like a great position to be in. And he sold me all the Jeeps, and he says, well, you gotta come out. I said, I gotta come out there and look at them. I'm not buying cars without looking at them. So I fly to Hawaii. I just wanted to tell this story, so I, it's really not, it's really not going where you wanted it to go, but I flew to Hawaii and I went to Oahu. He says, meet me at, meet me, I'll pick you up at six. Picks me up at six, we fly to Maui. I looked at like 25 Jeeps, it took me like 15 minutes. Then we went golfing. Then we flew back to Oahu, then we went to the Big Island, did the same thing. Went to all four islands. At the end, we sat down, I bought all 120 Jeep Wranglers from, I sold some to Dewayne, I sold some to people I knew, and I turned that inventory in and the dollars in about two and a half weeks. And I forget what I made, but it was a good, like, let's say it was 60 grand on a million dollar investment. So I thought that was pretty good. I meet with the CFO of Circuit City, and they look at that as, well, what if he did that every two weeks with the same million dollars, like as an inventory? I never really thought about it like that. And I'm like, well, I can't. They're like, why not? Like, well, I already bought all the Jeeps, there's no more left. But I ended up doing that every year for like five years. I went to Hawaii, went golfing, and bought a bunch of Jeeps. So that was pretty cool. A year later, we opened the first store. So I was the first buyer in the first store. As the stores expanded, I kind of continued to oversee all of the purchasing, and I did that for, I don't know the number of years, six or seven years. Ironically, when Mark, who he mentioned earlier, who is not gonna believe that he was in this speech this many times, he was kind of in charge of all the stores. He left to go to like a startup, a .com, and I was given the chance to be kind of the chief operating officer at the time. And then in 2006, I became CEO. So I was buyer, then oversaw the purchasing, then essentially oversaw all the stores, and then CEO.

So the, the first question on, we make a, we make a cash offer on every car. You know, we, I don't really know, we don't really go out and look and compare who we're competing against. We just make an offer that works for us. So in our wholesale business, we have a targeted margin and turn, and we run that car in our auction, and we, we get really quick feedback on that because we, we, we sold 450,000 cars last year, and we turn our inventory in wholesale about 35 times a year. So it's kind of ridiculous turn. Within a week, the car's gone, and then we track that data, so we know what to offer for the next car. So I, I think because we have that system, because we have the ability to tap into thousands of dealers who buy cars directly from us and do it very quickly, we're able to make a very fair offer. We buy one-third of everything we make an offer on, so whether it's wholesale or retail. So everybody always says, do you make a fair offer? And I say, well, one out of three people sell us their car, and there's no, there's no, you know, there's, there's no obligation for you to sell a car. You can, you know, sell to us, you have seven days to do it. So we must be making a fair offer if we're buying one out of every three. So that was your first question. Your second question, oh, where'd we get the money? So we still today, we, although we do in-house financing, that's only about 42 percent of our sales. The rest we partner with other lenders. So if you come and fill out a credit application at CarMax, we get to look at it first at CarMax Auto Finance. If we, if we can't do that deal, it routes to other lenders. Now, you don't, when you're a customer, you know that you're gonna get looked at by a number of banks, but when you get the answer back, you're going to get the approvals back. So we have, we kind of call it tier one, tier two, tier three. We're the tier one lender. We have partners in those other categories that make offers to our customers. And then the third one, that's kind of what I talked about here in terms of e-commerce. I feel like the infrastructure that we have is going to be a big competitive advantage, but I also feel like we have to do the things that you talked about and the things that I mentioned earlier in order to stay competitive. And that's probably our biggest investment. Is we'll take one more if we have it.