Oct 13, 2008

Decline In Used-car Demand Hits CarMax

The new-vehicle sales slump has received a great deal of attention lately with September sales being the worst in nearly two decades, but what has been underreported is the accompanying decline in used-vehicle sales this year. The latest victim of this trend is CarMax, a used-vehicle giant headquartered in Richmond, Va., that currently operates 99 used-car “superstores” in 46 markets. During the 12-month period, ending Feb. 29, CarMax retailed 377,244 used cars and sold 222,406 wholesale vehicles, but this year has proven to be so tough that the company recently announced a reduction in its service operations workforce of more than 600 employees. The reductions are being made in a majority of the company’s production superstores, where vehicles are reconditioned. The company said that only about one-third of the reductions are being made in direct response to its previously reported lower sales; the rest are an effort to gain efficiency.

“Since Memorial Day, we have taken significant steps forward in aligning our costs with current sales levels,” said Tom Folliard, president and chief executive officer of CarMax. “This was a difficult but necessary decision for us to make. To ease the transition into the job market for these associates, we are offering severance packages, meeting with them individually to explain the decision and providing them with important information about benefits and pay.”

In connection with the reductions, the company estimates that it will incur approximately $7 million of severance costs.