When you need a new car, one of the places you may consider buying a car from is CarMax.
CarMax specializes in selling used cars.
Considering that the cars they sell are older, you may feel surprised by the sticker prices.
It may make you wonder why CarMax sells expensive cars.
Why Is CarMax So Expensive? (10 Reasons)
The average price range of an SUV at CarMax is $15,000 to $40,000.
The average price range of a sedan at CarMax is $15,000 to $35,000.
Considering they sell used cars, that seems quite expensive.
Certain factors like intensive repairs and inspections, delivery services, and warranties contribute to these high prices.
Let’s go into further detail about what makes CarMax so expensive.
1. Thorough Inspections
One of the reasons why CarMax is expensive is that it performs extensive inspections.
Because it sells pre-owned cars, CarMax must ensure that the cars are usable and ready for their new owners.
This isn’t something that other dealerships do.
While some dealerships might put a fresh coat of paint on the car and give it a good detail, most tend to leave the internal stuff alone.
They leave it to you to fix any problems with your pre-owned car yourself.
While this means you usually get a lower price on the car at a dealership, if you need to immediately take your car to a repair shop, this can quickly make it as expensive as buying a pre-owned car from CarMax.
It may even end up becoming more expensive.
CarMax knows its customers.
It knows its customers want pre-owned cars that are going to run as well as brand-new cars.
It knows that its customers are willing to pay more for a vehicle that meets those qualifications.
CarMax cars are also more expensive because CarMax spends the money to ensure each car is in good condition.
They have to pay their mechanics to work on each car that comes into the lot.
That might mean they also need to buy new parts to replace old ones.
The worse condition the car is in, the more money that the company has to put into it.
They’re not looking to just get the car running either.
They want it to run like new.
That costs money.
To make up for those costs, they sell their cars at higher prices.
CarMax is expensive because you’re paying for the repairs that CarMax performs on its used cars.
2. Warranties On Pre-Owned Vehicles
Another reason CarMax is expensive is that it offers warranties on its vehicles.
Warranties offer steep discounts on repairs for a certain amount of time.
CarMax essentially covers the cost of a repair should you find yourself in need of one.
As such, CarMax ends up taking on more costs.
It does this for a few reasons.
The first is that CarMax already does substantial repairs to the cars it buys.
The business hopes that, in most cases, the cars won’t need repairs until after the warranty expires.
They also know that their customers appreciate having a warranty even if they don’t ever end up using it.
The simple idea of having a warranty can improve customer satisfaction.
Since their cars come with warranties, the price of the warranty essentially gets built into the price of the car.
If CarMax does end up needing to do repairs on the car later, then they have some funds from the sale of the car to cover those repairs.
Adding a warranty to a pre-owned car is risky for a business.
Pre-owned cars are more likely to break down than new cars.
That’s why not all dealerships offer warranties on used cars.
They know that they’re probably going to lose money by having to repair it later.
CarMax offers warranties which also means that it has higher prices on its cars.
CarMax is expensive because it offers warranties on pre-owned cars.
3. Ships Cars To Your Home
One of the best services that CarMax provides is that it can ship a car right to your home.
CarMax has several lots in major cities and it also has an online store.
You can look at a car online, learn about its features, and then pay for it right there.
It’s not unlike Carvana in that you never have to visit a dealership if you don’t want to.
However, this service also adds to the price of the car.
That’s because you may be paying for a car that’s actually in a different state.
Their online marketplace shows all the cars that CarMax has in its inventory regardless of your location.
If you buy a car that’s across the country, then it’s going to cost you extra to have it shipped to you.
Even if the car is in your state, CarMax still takes on the costs of delivering it to your home.
They have to pay employees to load the car onto a truck.
Then they have to pay the truck driver to deliver the car safely to your home.
Since you may be the only one buying a car in your area, there isn’t a way for them to save money by adding on additional trips.
As such, they take on a new cost each time they need to deliver a car somewhere.
In addition to employee wages, they also must pay for gas.
If gas prices are high, then that means their costs become even higher.
The benefit is that you don’t have to go anywhere to get your new car.
If you don’t have a car at the time of purchase, then this might be even more beneficial since you don’t have to worry about renting a car or getting a ride from someone just to pick up your new one.
That said, you can expect to pay extra for this type of convenience.
CarMax is expensive because it delivers cars right to your door.
4. Offers Trade-Ins
Another thing that CarMax does is it offers trade-ins.
When you trade in your car, you’re able to lower the price of the car that you want to buy.
While this can make your new car more affordable, it’s also one of the reasons why CarMax is expensive in the first place.
Trade-ins are always a bit risky for dealerships.
They can never be quite sure if the deal is going to be worth it for them.
While it does mean that they’re able to get their hands on a new car for their lot, it also means that they have to sell that car to make up their money.
If the car isn’t particularly appealing, then it could take them a long time to sell it.
For example, if the car is no longer trendy or doesn’t serve customers’ needs, then it’s probably going to sit in their lot for a long time.
That takes up inventory space that CarMax could be using to store cars that actually do sell.
There’s also always a chance that they’re never going to be able to sell that car.
In that case, they will have bought the car without ever making their money back.
In the meantime, they lost money on the car that they sold to you because it was at a discounted price.
Since there’s some risk to trade-ins, CarMax sells its cars at a higher price.
This helps cover any deals that might not be as lucrative as the company might have hoped.
As a customer, you get the benefit of being able to get your old car off of your hands in exchange for a new car at a cheaper price.
It’s usually not that much of a risk for you.
Since CarMax is taking all the risk, it has higher prices on its cars.
CarMax is expensive because it allows trade-ins.
5. No-Haggle Pricing
A feature that CarMax promotes is its no-haggle pricing.
It knows that customers don’t always like haggling.
They want to know the exact price that they need to pay, and then they pay it.
This is another reason why CarMax is expensive.
It doesn’t let you haggle prices down.
When purchasing at a dealership, haggling is typically part of the buying process.
The dealer will offer a price, and then you can negotiate with them from there.
For people who are great at negotiating, it’s a great way to save money on a car.
Not everyone is great at negotiating, and you can be sure that dealers are experts at it.
As such, it’s not uncommon for people to end up getting a bad deal after haggling.
Those who wish to avoid that will likely find shopping at CarMax much more relaxing.
When you are interested in a car, you simply speak to a dealer about buying it.
They’ll go over the details with you, then prepare the paperwork.
You don’t have to worry about them trying to upsell you.
This makes CarMax expensive for a few reasons.
The first is that you don’t get a chance to lower the price.
What you see is what you get.
Secondly, you’re also paying for convenience.
Some people are willing to pay a bit more to avoid haggling.
They want a streamlined buying process instead.
CarMax provides that and charges a bit extra as a convenience fee.
CarMax is expensive because it doesn’t allow haggling on its prices.
6. Regional Prices
A major reason why CarMax is expensive is that sometimes the cars reflect regional prices.
Cars are more expensive to manufacture in some areas than others.
Cars in California, for example, tend to be more expensive because California has several regulations that car manufacturers need to follow.
In particular, they emphasize making cars environmentally friendly.
That means car manufacturers have to spend more money to ensure their cars are compliant with these regulations.
This makes CarMax expensive because you don’t always know if the car you’re buying is from a more expensive region or not.
That’s because CarMax fills its lots with cars from across the country.
The car you buy might be from California.
If it is, then it’s going to have a heftier price tag.
That’s because CarMax also had to pay a higher price to buy it.
To cover their cost and make money off the sale, they also have to list it at a higher price.
This also becomes a problem when you’re buying online.
The website doesn’t always tell you where the car is coming from.
You might buy a car that you like, but if it’s from California or another expensive region, then you’ll be paying more for it.
CarMax is expensive because the region you buy the car from might produce expensive cars.
7. Transfer Fees
Another reason CarMax is expensive is that it adds transfer fees to the price of its cars.
A transfer fee is added when you choose to buy a car online.
It costs CarMax a good amount of money to transfer a car.
There are a few factors that influence how expensive the fees become.
One of those is the distance from the location of the car to your address.
If the distance is far, then CarMax will need to use more fuel and resources to bring the car to you.
They also need to pay their drivers and employees involved with bringing the car to your address.
As a result, the transfer ends up becoming more expensive.
If you happen to live closer to where the car is coming from, then your transfer fee may not be as hefty.
This is also true if you buy a car and have it transferred to a CarMax parking lot.
Since they still spend money bringing the car to a new location, they need to make up for that money.
CarMax is expensive because it adds transfer fees to the overall price of their cars.
8. Big Overheads
Since CarMax sells and buys cars, they have immense overhead costs.
Buying cars isn’t cheap even when they’re used cars.
Yet, this is a cost that CarMax has to continue to pay to ensure it has enough inventory for buyers to purchase.
Without cars, they have no business.
Depending on where they source their cars, CarMax may pay high prices or low prices.
They might be able to score a deal with a trade-in or buy cars at a low price from an independent seller.
They might have to pay high prices on cars that come from dealers or other sources.
They then need to pay to repair those cars and essentially make them brand new.
All these costs get added to other operational costs like employee wages and taxes.
They need to procure fuel for the delivery vehicles as well as for the cars they are selling.
If a customer brings a car under warranty in for a repair, then they need to cover the repair costs.
To cover these costs, CarMax has to have a large pool of revenue to draw from.
The only way they can get a pool large enough to cover these expenses is by pricing their cars high.
Additionally, CarMax’s main source of income is through selling cars.
They don’t have things like subscription services or other products that they sell to further add to their income streams.
As such, they need to make the most money possible through car sales.
CarMax is expensive because of its large overhead costs.
One of the primary things you pay for at CarMax is convenience.
Convenience makes CarMax a bit more expensive than purchasing a used car elsewhere.
Most businesses understand that if they can make certain processes extremely easy and convenient, then people are going to pay more for them.
That’s because they know that people don’t want to waste time.
They lead busy lives, and they need to get things done.
CarMax makes buying a car more convenient in several ways.
The first is by eliminating haggling.
A lot of time goes into haggling.
Not every customer wants to haggle.
When you see a price at CarMax, you know that’s the one you will pay.
It makes the process more convenient because buyers know exactly how much they need in advance of their purchase.
Additionally, CarMax makes getting the car more convenient.
If you don’t have a car to use to pick up your new car, in most cases, you’ll need to arrange a ride from a friend or family member.
You may even need to take an Uber or taxi to the car lot to pick up the car.
CarMax makes it more convenient by delivering the car to you.
All these services cost more, but they also make the experience convenient.
10. 24-Hour Test Drive
A final reason CarMax is expensive is that it allows its customers to test their cars for 24 hours.
This costs CarMax money.
While the customer will likely fuel up the car to use it, this isn’t always the case.
CarMax will need to pay for gas.
They’ll also need to ensure the car has enough oil and coolant.
The problem comes when the individual decides they don’t want to buy the car.
They put wear and tear on the car which reduces its price.
CarMax won’t earn as much on the car if this continues to happen.
To ensure they’re able to make up for any potential losses, their cars have higher prices from the start.
CarMax is expensive because it lets people test-drive cars for 24 hours.
CarMax is a great place to buy a used car.
It offers a convenient buying process that saves time.
However, the reasons listed above make it one of the more expensive places to buy a used car.