ORLANDO, Fla.—The continually expanding CarMax used-car superstore chain wants to add as many as 25 new-car franchises by 2002. Should tire dealers worry about that?
Yes, if they rely on automotive service to help balance their books, because CarMax also will begin actively pursuing the retail repair business. And it will begin building a network of used-car reconditioning centers, in part to free up service bays at its superstores for retail service work.
A separate service reception area at the company's newly opened Orlando store will set the pattern for such service areas in the future. The waiting room contains workstations with telephones and hookups for personal computers, so customers can work while they wait for their cars.
Those plans, the most detailed the chain has revealed to date, show CarMax on a quest for business that's key to the nation's existing car dealer network. Retail repairs and parts, for example, accounted for 47 percent of all profits at franchised dealerships in 1995, the National Automobile Dealers Association reported.
Used-car sales accounted for 43.5 percent. And CarMax expects to have as many as 100 used-car outlets in place by 2002.
The details come from a preliminary proxy statement filed with the U.S. Securities and Exchange Commission. CarMax's parent, Circuit City Stores Inc., wants to create a special class of ``letter stock,'' tied to the market performance of CarMax alone.
The proxy estimates CarMax will increase the number of service bays in its system from 104 in early 1997 to 2,508 by 2002. The document did not say how many reconditioning centers CarMax will establish. The CarMax fiscal year ends Feb. 28.
CarMax plans eight to 10 additional stores in fiscal 1998 and 15 to 20 per year through 2002. It has all the sites secured for stores through 1998, and plans to build in 45 of the top 50 U.S. markets.
CarMax further revealed that its sole new-car franchise—a Chrysler-Plymouth-Jeep-Eagle store in Norcross, Ga.—has been hugely successful, exceeding Chrysler's annual planning volume in just five months. But the chain lost $5.2 million on operating revenues of $276 million in fiscal 1996.
In filing the proxy statement, CarMax is seeking market validation of the used-car superstore concept—and public money to finance its expansion.
If approved by Circuit City shareholders, the offering would keep the two companies together, but would allow investors to buy a special class of stock tied to the performance of CarMax. Letter stock has been used by General Motors Corp., for example, with its H class shares for the GM Hughes Electronics Corp. subsidiary. Circuit City stock already is traded on the New York Stock Exchange.
Circuit City will retain an 80 to 85 percent equity stake in CarMax, while the balance would be sold in the public offering, said Ann Collier, assistant vice president at the electronics chain.
In Orlando recently for the opening of CarMax's sixth store, CarMax President Austin Ligon said, ``We have not announced plans to spin it (CarMax) off.'' But, he added, ``this maintains our flexibility to do so.''
The offering would permit CarMax to continue taking advantage of its parent company's resources in acquiring real estate and in getting volume discounts on advertising, said Mr. Ligon.
In announcing plans to acquire more new-car franchises, CarMax officials added a note of caution. The ``relative unavailability of new franchises,'' and reluctance on the part of some manufacturers to allow public ownership could slow the plan, the statement said.
CarMax added that several foreign and domestic automakers have given initial indications that they would grant a franchise to CarMax. Those automakers were not specified. CarMax is exploring these possibilities and talking with existing franchised dealerships.