Carvana and CarMax, two of the largest used car retailers, have different business models that affect their profit margins per vehicle. Let's break down the numbers provided:
Carvana's Profit Calculation:
* Purchase Price: $9,000
* Fees and Transport: $590 ($340 + $250)
* Reconditioning Costs: $1,000
* Total Cost: $10,590
If Carvana sells this vehicle at Kelley Blue Book (KBB) retail value, which is approximated at $11,670 (assuming the last digit was cut off), the profit would be:
* Selling Price: $11,670
* Total Cost: -$10,590
* Profit: $1,080
However, Carvana's average profit per vehicle sold is reported at $6,432. This suggests that either they often sell above KBB retail, manage costs lower, or bundle services that increase overall revenue per sale.
CarMax's Profit Calculation:
* Given the same costs, if CarMax sells at KBB retail, their profit would be:
* Selling Price: $11,670
* Total Cost: -$10,590
* Profit: $1,080
CarMax, with an average profit of $2,251 per vehicle, indicates that their pricing strategy, operational costs, or market position might lead to different sales dynamics.
Analysis:
* Pricing Strategy: Carvana might price vehicles more competitively or offer more on features like lower fees or longer warranties, inflating their per-vehicle profit.
* Operational Efficiency: Carvana's model might include lower overhead through automation or less physical retail space.
* Market Position: Carvana's branding might allow for higher pricing due to perceived value or convenience.
Both companies' profits per vehicle sold suggest different approaches to the market, with Carvana potentially capturing more value per transaction through various strategic elements beyond just the base vehicle sale.