Used Cars That Don't Impress Me Much


  • Intro
  • History of Used Cars
  • Major Players
  • Carvana
  • CarMax
  • Conclusion/Recommendation


I distinctly remember my first car… a Kelly green 2003 Honda Civic.

Sounds like a pretty good first car, right?


It was a total lemon. Within 24 hours of owning the car I had to replace the entire transmission, which cost more than the amount we paid for the entire car.

Not long after that, I had to replace the engine belt, battery, all four tires, and pin the roof carpet to the ceiling with thumb tacks.

I ran that car into the ground though… It got me to and from college for years, surviving brutal winters, blistering hot summers and constant teenage racing.

Thankfully, those days of calling local garages, scouring Craigslist and relying on the expertise of your parents to purchase a used car appear to be well behind us.

Nowadays, you can sit on your couch, with your favorite TV show playing in the background, pretending to work and simultaneously buying a decent quality used car that will be delivered to your doorstep.

Some of you might enjoy the haggling process with salesmen at used car lots, but I imagine most of us dread that part of the deal.

This week we are going to look a little deeper into the Used Auto market – what does it look like, how has it changed and what are the major players doing that sets them apart?

Let’s dive in!

History of Used Cars

Ever since the first accountant stated: “New cars depreciate by 30% the moment you drive them off the lot” consumers have been choosing used cars over new cars. 

It wasn’t until the 1970’s that the used car market was truly born, and it became a normal part of every young adult’s life to search longingly at car lots for their dream ride.

Car prices were steadily increasing in the 1950s and 1960s as the post-war world saw a boom in families, access to vehicles and the rise of the cross-country family vacation.

With high prices, families held onto cars for a longer period of time – often 5-7 years before upgrading to a new model. All of that changed when leasing cars really took off.

By 1970 there were more than 11,000 car dealers involved in leasing programs across America and there were more than 1 million leased cars on the road.

This changed the timeline of ownership from 5-7 years down to 2-3 years. As lessees returned their only slightly used cars, rather than buying them out, the number of options for car buyers steadily increased.

It was at this time that the cost of manufacturing cars was also decreasing and automotive companies started to produce new models on a more frequent basis.

Frequency of newer model cars + shorter ownership periods = birth of used car industry.

Now there were cars available that still had plenty of life left in them and could be sold by dealers for a profit and provide families a cheaper alternative to new cars.

Fast forward to today, where the used car market is valued at over $1.5 trillion and roughly ¼ is facilitated by online sales.

Major Players

The used car industry is massive – for example, I can drive a stretch of road by my house and pass no less than 8 different used car dealerships. But most of these dealers are privately owned and operate as part of a larger segment that sells new, used and leases all together.

Instead of diving into those businesses, let’s look at some more widely recognized names that focus only on the used car market while offering something unique.

We are going to look at Carvana and CarMax today and try to get a better handle on how these companies make their money and separate themselves from the hordes of used car salesmen near me.


At this point, both in part to a global pandemic, but also thanks to a global wave of overall laziness, just about everyone has heard of Carvana.

The website that allows you to buy a car and have it delivered directly to your doorstep without ever putting on a pair of pants. That is capitalism at its finest, folks!

On top of this, if you wanted car buying to be even “easier”, Carvana also has created a car vending machine in a few select cities.

As if it wasn’t hard enough choosing between Chili Cheese Fritos or Flamin’ Hot Cheetos for $1, try choosing between a BMW 3 series and a Dodge Charger for $40k!

All of this feels a little silly, but when you think about the world of used car sales before now – this all starts to make a little more sense.

The term “used car salesman” has never been a positive description of someone or their sales habits. By eliminating that annoying, commission-hungry salesman from the equation, Carvana has flipped the industry on its head.

But has that approach been successful?

Currently, Carvana is the second largest seller of used vehicles in the U.S. – gaining that title in just under 8 years. In 2021, they sold over 425k cars and brought in $12.8bn in revenue, this is a significant increase over 2020 numbers – 244k cars sold and $5.5bn in revenue.

Carvana allows customers to find cars using their online platform, but also gives them the ability to apply for automotive loans and trade in/sell their old vehicles, all in one spot. They have combined the search and the purchase process into one platform for consumers.

It appears that Carvana experienced the same pull-forward of demand that many software focused companies had experienced during the pandemic. More people staying at home and avoiding situations with large groups of people = more people using software at home and ordering cars to be delivered to their house.

The biggest question is whether this demand will be sustained going forward, or if we will see similar downward trends that other pandemic high-flyers have experienced.

We have already seen a reduction in demand over the last 2 years as used car prices have skyrocketed.

Quick Financials:

  • NTM:
    • Retail Unit Sales: 474K
    • Revenue: $15.47bn
    • Operating Margin: $1.7bn
    • EBITDA: ($833)
    • Net Income: ($1.5bn)
    • Days of Inventory on Hand: 69.5


CarMax, like Carvana, has eliminated the commission driven salesmen but instead of replacing them with a slick software platform, CarMax has replaced them with expert salesmen who receive a flat commission.

Generally, car salespeople will drive the highest ticket item, or the highest margin car, without having superior knowledge on the differences between a Ford F-150 and a Toyota Tacoma. Heck, sometimes these salesmen don’t know how to start the car!

But at CarMax, the salespeople are trained, extensively, on the ins and outs of all their cars. They provide much better insight and knowledge into the inner workings, safety ratings and experience of driving a car.

And on top of that, they don’t care if you buy a Toyota Prius or a BMW 3 series – they get paid the same either way. And that makes the experience for the buyer so much easier and more enjoyable.

The experience of walking into a CarMax location is also much more appealing than local dealerships. Most often, local dealerships have glass showrooms for the NEW car section and the USED car sections are dark, dingy, and often a bit dirty.

At CarMax, the entire place is bright and well-lit. That alone changes the entire mentality of the buying experience for consumers.

CarMax also acts as a “one-stop-shop” for consumers – allowing them to trade-in/sell their old vehicles, purchase a new one and finance it with an in-house credit facility.

The key profit machine of CarMax is that in-house financing arm. In Q4 of 2021, they financed $2.1 billion of sales at an average interest rate of 8.2%. Income generated by this division was $194M.

Extrapolating that out shows an annual financing volume estimate of $8.4 billion and ~$776M of revenue. CarMax shows that on average, they finance 88.7% of the value of the vehicle and currently manage a receivables book north of $15 billion.

While there are still expenses associated with managing this receivables book and financing purchases for customers, the FY 2022 Net Income of $1.1bn seems to be mostly made up of this interest income.

An extremely unique value proposition that CarMax offers on its financing options is a 3-day payoff option. CarMax will finance consumer’s vehicle purchases but will give a 3 day grace period where consumers can go out and find other/better financing options and pay off the CarMax loan in 3 days without any fees or penalties.

Talk about no hassle car buying – can you imagine a greasy car salesman telling you that you are free to find any other financing options? NO. These salesmen are all pushing their in-house financing arms because they know the company mints straight cash from those loans.

Quick Financials:

  • NTM:
    • Retail Unit Sales: 924K
    • Revenue: $33 billion
    • Operating Margin: $3.2billion
    • EBITDA: $1.5 billion
    • Net Income: $892 million
    • Days of Inventory on Hand: 52.4


The used car industry is not going anywhere soon. Even with a 54% increase in costs over the last 2 years, people are still going to be buying cars.

First, everyone sold their cars at the beginning of the pandemic because let’s be real, who needs a car when you never leave your bed or put on clothes? But once things started to clear up and going outside became normal again – everyone needed a car.

Supply chain issues caused new cars to be impossible to buy because no one had any inventory. This is a main driver behind the rise in cost of used cars over the last few years – everyone who needed to buy a car was flush with cash thanks to Uncle Sam, but no cars were on the lots!

While things will eventually settle down on the price front, used cars will always be a steady industry. Even more so after the massive global push towards electric vehicles – more people will be trading in their old cars and upgrading to EV’s. Or, trading in their “old school” EV’s and upgrading to the latest and greatest.

Companies like CarMax will always have a place – and most likely a growing place. They have been expanding at the pace of about 10 stores per year, spending between $300-$500M in CapEx. At their current profit margins, they can grow at this level for a long time coming. And the desire to not have a slimy salesperson breathing down your neck is only going to grow as the world becomes a slightly kinder and more thoughtful place.

Companies like Carvana are a bit tougher. Their idea seems to fit the day and age very well. Their execution is not quite there yet. The internet is rife with complaints of poor quality control from Carvana – cars being delivered and falling off the truck are just the tip of the iceberg.

Shopping for a car online is 10/10 Carvana’s biggest calling card. A towering car vending machine? Novelty – for sure. But the best idea? Probably not.

On top of that, Carvana has not turned a profit yet – even after revenue more than doubled in 2021 to $12 billion. While burning nearly $300M in cash for the year, they are sitting in a precipitous position with only $400M of cash on hand.

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