This article was written by Samuel Phineas Upham

Carmax began life in 1991 as an idea codenamed “Project X,” or to those in-the-know, “Honest Rick’s Used Cars.” It was originally a concept developed by Circuit City executives, and first proposed by a consultant who was hired to evaluate business opportunities for Circuit City beyond selling electronics.

CarMaax tries to uncomplicated the process of buying a used car using honest information that the buyer wants to know. Upon arriving at a CarMax lot, an egent guides the buyer around the lot asking questions about price range and preferred style. The model originally built itself upon a no-fee structure, but soon found that buyers were willing to pay transaction fees for a lower-priced car overall. The stores are designed to be huge showrooms that move inventory quickly. Some estimates put CarMax lots as able to turn over inventory up to eight times in a single year.

The company grew through expansion of existing car lots. It uses about 40 employees per lot, including agents and miscellaneous office staff. Each car has roughly 12 hours worth of work done to it before it hits the show room floor. That work may include routine maintenance, inspection, and repair of specific parts. All CarMax cars are offered with a 30 day warranty, and a five-day money back guarantee.

CarMax stock was first offered in 1997, but it was no longer a part of Circuit City by 2002. CarMax’s biggest competitor is AutoNation Inc., but CarMax dominates completely in used car sales.

Samuel Phineas Upham

About the Author: Samuel Phineas Upham is an investor at a family office/hedgefund, where he focuses on special situation illiquid investing. Before this position, Samuel Phineas Upham was working at Morgan Stanley in the Media & Technology group. You may contact Samuel Phineas Upham on his Twitter page.