Profiles of Success

Austin Ligon and CarMax

Re-inventing the Car Buying Business

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An ethics award given to a seller of used cars? CarMax had that unusual distinction in May 2006 when it won the Torch Award for Business Ethics from the Metro Atlanta, Athens and Northeast Georgia Better Business Bureaus. President and CEO Austin Ligon, who co-created CarMax, originally a division of Circuit City, had a bad experience himself once at a car dealer. He knew it didn’t have to be that way and years later had the chance to reinvent the car buying business.

Austin Ligon CarMax workingUnlike many CEOs of large companies, Ligon did not start out as an entrepreneur. He worked in a series of jobs for many years as an employee, beginning as a grocery store cashier in Austin, Texas. Later, with degrees in economics from the University of Texas and an M.B.A. from Yale Business School, he worked for a consulting firm and as senior vice president of Strategic Planning for Marriott Hotels and Resorts. He landed an executive position at Circuit City’s corporate planning department in 1990. Shortly thereafter, his boss, Richard Sharp, began thinking about creating a new division of the very successful consumer electronics and computer store.

CarMax was born in 1993 when Sharp and Ligon saw opportunity in the used car industry: supply was high, demand was steady, and management practices and customer service were dismal. During the planning process, they looked for a market “with the largest consumer gap possible . . . the gap between what the retail world currently offers and what consumers ideally want.” They found it in the used car business.

Ligon was given a $50 million budget and began opening lots with hundreds of cars. CarMax aimed to take the sleaze factor out of the business with fixed prices, transparent financing arrangements, flat commissions for sales people no matter what car they sold, quality inspections, and a five-day no-questions-asked return policy. With no haggling and no mind games, they operate like a retailer, not like a dealership. In spite of a slow start, it’s been remarkably successful, especially with shoppers who would rather not bargain or deal with high-pressure salespeople. The price may be a little higher than could be negotiated elsewhere, but for many car buyers, it’s money well spent.

The late 1990s were rough, with competition from giant dealer AutoNation and a learning curve about which cars to stock, a most essential piece of knowledge. CarMax didn’t turn a profit until 1999, but Ligon busily exercised his stock options and bought as many shares as he could get his hands on. (Smart move. His holdings as of March 2006 were variously reported as either 1.2 million or 1.8 million shares, worth somewhere between $42 and $56 million.)

In late 2002, CarMax spun off from Circuit City and became an entirely separate company, with Sharp as its chairman and Ligon as president. In 2005, CarMax was the nation’s largest used car retailer with about 290,000 vehicles sold last year from 71 lots, and its revenues are $5.26 billion. It has plans to grow to 300 stores in the next 10 years. Fortune magazine named it America’s most admired company in automotive retailing services and one of the “100 Best Companies to Work For.”

Ligon has already done his part. He won’t oversee the expansion because he will retire in 2006 to enjoy his horse farm, travel, and perhaps join a nonprofit organization.

Suzanne Ridgway is a freelance writer and regular columnist for Working World and Working Nurse magazines. Suzanne also writes grant proposals for nonprofit organizations.

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