Forward-Looking Statement
This presentation contains forward-looking statements, which are subject to risks and uncertainties. Additional discussion of factors that could cause actual results to differ materially from management’s projections, forecasts, estimates and expectations is contained in the CarMax, Inc. SEC filings.
2

CarMax Today
Used Car Superstores
 Nation’s leading used car specialist
Sacramento
1
Las Vegas
1
1
Los Angeles
Mid-sized Markets (13)
Large Markets (8)
Chicago
7
Dallas/Fort Worth
Kansas City
1
4 Baltimore / DC
Richmond
1
Nashville
1
Raleigh
Knoxville
1
1 1
2
Charlotte
1
4
Greensboro
Greenville
4
Birmingham 1 Atlanta
San Antonio
1
Houston
4
Tampa
2
2
Orlando
3 Miami / Ft. Lauderdale
 Pioneered used car superstore
–1993
 Operates 44 used car superstores
 FY03:
Sales: $ 4Bn
Net profit: $ 95mm
Separation Costs: $ 8mm
Earnings ex Sep.: $103mm
3

What Is CarMax?
 Unique retail opportunity
 Provides superior economic returns
4

CarMax Sells More Cars
 CARMAX
 Public dealers
 Average dealer (NADA)
Sales/Store (Units)
2002
5,210
2,023
1,376
5

CarMax Gains Market Share
 CARMAX
 Public dealers
Used Car
Comp Unit Sales
2002
+ 8%
- 8%
6

CarMax Earns Higher Returns
18
16
14
12
10
8
6
4
2
0
15.8%
HD
14.1%
12.9%
ROIC
12.8%
(1)
12.4%
10.5%
10.2%
6.7%
BBY KMX KSS WMT COST SPLS Auto
Dealer
Average
(2)
(1) After-tax EBITR/Average invested capital. Invested capital includes operating leases capitalized at 8x.
(2) Auto dealer average includes: ABG, AN, GPI, LAD, SAH and UAG.
Source: CarMax calculations based on companies’ public filings, most recent fiscal year.

Why Does CarMax Work?
 Used car focus
 Consumer-preferred concept
 Process-driven competitive advantages
 Organic growth plan
8

Used Car Focus

CARMAX
 Public new car companies
 Average new car dealers (NADA)
Used Car Mix %
(Units)
91%
38%
48%
9

Why Used Cars?
 Huge, fragmented business
 Non-commodity
 Stable
10

Used Vehicle Sales Stable
15.0%
10.0%
5.0%
0.0%
(5.0)%
(10.0)%
(15.0)%
% Change New Vehicle Unit Sales % Change Used-Vehicle Unit Sales
Source: Manheim Auctions
11

Process-driven
Consumer
Offer
Purchasing/
Inventory
Management
Reconditioning
Finance
Originations
Information Systems
12

Marketing
13

Marketing
CarMax Marketing
Competitive Advantages
I. What we offer
II. How we offer it
14

Marketing
I. The CarMax Offer - Overview
Consumer Need
1. “No Games”
2. “I don’t want to drive all over town”
3. “I want a car I can trust”
CarMax Offer
Low No-Haggle Price
Broad Selection
Great Quality
15

I. The CarMax Offer
1. Low, No Haggle Prices
 No haggle on price
on trade-in
on financing
on extended service plan
 Competitive Prices
($500 - $1,000 Below KBB)
16

I. The CarMax Offer
2. Great Selection
 10x typical dealer
 All makes and models on one lot tailored to local area
 15,000+ cars available for transfer
17

I. The CarMax Offer
3. Great Quality
 No flood/frame damage
 125+ point inspections and reconditioning
 5 day money back guarantee
 30 day worry free warranty
 Extended warranties
18

I. The CarMax Offer
Matching Consumer Needs
Percent of shoppers stating they came to
CarMax because of... (n = 9800)
No Haggle Pricing
Large Selection
Vehicle Quality
81%
79%
78%
19

I. The CarMax Offer
Superior to Competition
Price
Selection
Vehicle Quality
Shoppers that rate CarMax superior to other dealerships on... (n = 9800)
72%
75%
81%
20

Marketing
CarMax Marketing
Competitive Advantages
I. What We offer
II. How We Offer It
- Internet Competitive Advantages
- Newspaper Competitive Advantages
- Television Competitive Advantages
21

II. How We Offer It
CarMax Primary Competition
New Sales
Per Month
Used Sales
Per Month
Number of
Dealerships
Small Franchise
Dealers
Less than
35
Less than
25
8,690
Mid-Size Franchise
Dealers
35-65
Large Franchise
Dealers
65+
25-45
6,080
45+
6,950
22

II. How We Offer It
Internet Competitive Advantages
 National scale: selection
 Site optimization
Consumer Preferred
23

II. Internet Competitive Advantages
National Scale: Selection
 Single national brand
 15,000+ cars
 Transferable anywhere
Over 4,500 SUV’s
Over 2,300 vehicles under $10K
Over 525 Jeep Grand Cherokees
24

II. Internet Competitive Advantage
Ease of Use
25

II. Internet Competitive Advantage
Consumer Preferred
 Number 1 car site in every market
 84% say site is excellent/very good
 90% say better than other dealers
 Second most mentioned car site nationwide! (J.D. Power)
26

II. How We Offer It
Newspaper Competitive Advantages
 Scale: lower costs
 Ad optimization
Consumer Preferred
27

II. Newspaper Competitive Advantages
Scale: Lower Costs
 Purchasing advantage vs. 90% of dealers
 Consistent ad (3,000 ads - 4 designers)
28

II. Newspaper Competitive Advantages
Optimized for Used Car Shopper
Quality
Selection
Price
29

II. Newspaper Competitive Advantage
Consumer Preferred
 Non-CarMax markets
 190+ competitor ads
CarMax Ad Had Highest Visit Intent (n = 400)
46%
16%
First Top 3
30

II. How We Offer It
Television Competitive Advantages
 Scale: lower costs
 Ad optimization
Consumer Preferred
31

II. Television Competitive Advantages
Scale: Lower Costs
 Buying scale vs. most (10 - 35%)
 Ad production economies
(20 ads vs. 0-4 ads)
32

II. Television Competitive Advantage
Ad Optimization
 350-600 consumers test every ad
 2-4 cities
 Moment to moment reaction
33

II. Television Competitive Advantage
Consumer Preferred
Likelihood to Visit
Less Neutral More
+30%
Typical
CarMax ad
Local dealer ad (22 ads)
-16%
34

II. How We Offer It
Impact of Marketing Scale
Unique website
Visitors/month
Newspaper
Pages/week
TV points/week
Marketing Expense
(% of sales)
Small Dealer
(40%)
0-100
0.1
3
1.2%
Large Dealer
(30%)
1,000-5,000+
1.0
17
1.3%
CarMax
50,000+
2.1
150
1.3%
35

Process-driven
Consumer
Offer
Purchasing/
Inventory
Management
Reconditioning
Finance
Originations
Information Systems
36

Process-driven
Consumer
Offer
Purchasing/
Inventory
Management
Reconditioning
Finance
Originations
Information Systems
37

Proprietary Operating Process
Competitive Advantage

Consistent processes across stores

Scalable

Hard to replicate
– time
– re-applied learning
38

Proprietary Operating Process
Why Others Failed

Operating processes weak

Only copied the sales end

Did not fully adopt equities

Focused on the visible consumer offer
39

Process-driven
PROPRIETARY OPERATING PROCESS
Purchasing/
Inventory
Management
Reconditioning
Finance
Originations
Information Systems
40

Process-driven
PROPRIETARY OPERATING PROCESS
Consumer
Offer
Reconditioning
Finance
Originations
Information Systems
41

Process-driven
PROPRIETARY OPERATING PROCESS
Consumer
Offer
Purchasing/
Inventory
Management
Finance
Originations
Information Systems
42

Process-driven
PROPRIETARY OPERATING PROCESS
Purchasing/
Inventory
Management
Reconditioning
Finance
Originations
Information Systems
43

Process-driven
PROPRIETARY OPERATING PROCESS
Consumer
Offer
Purchasing/
Inventory
Management
Reconditioning
Finance
Originations
Information Systems
44

Process-driven
PROPRIETARY OPERATING PROCESS
Consumer
Offer
Purchasing/
Inventory
Management
Reconditioning
Originations
Originations
Information Systems
45

Process-driven
PROPRIETARY OPERATING PROCESS
Consumer
Offer
Reconditioning
Finance
Originations
Information Systems
46

Purchasing/ Inventory
Management
Efficient Inventory Management

1 million served

4 million appraisals

All transactions captured and analyzed

Right car, right place, right price and right time
47

Purchasing/ Inventory
Management
People Development

Volume buying = great buyers

130 buyers with over 10,000 appraisals

Report card = accountability and improvement

Difficult to replicate
48

Purchasing/ Inventory
Management
Proprietary Pricing Model

Sophisticated model

Refined over 10 years

Store specific

Automated and flexible
49

Purchasing/ Inventory
Management
We Buy Cars

Cash offer on every car

We will buy your car even if you don’t buy from us

1/2 of our vehicles are sourced through appraisals
50

51

52

53

54

55

56

Process-driven
PROPRIETARY OPERATING PROCESS
Consumer
Offer
Reconditioning
Finance
Originations
Information Systems
57

Auctions: Disposing of Vehicles
We Buy Cars

The majority of appraisal buys don’t make the cut

125,000 cars/$420 million in sales

$3,400 cost, 10 years old, over 100,000 miles
58

Auctions: Disposing of Vehicles
Traditional Disposal Options

Wholesale individually

Take to off-site auction
–
Excessive fees
–
60% sales rate
–
1:6 dealer/car ratio

Minimal control, high cost
59

Auctions: Disposing of Vehicles
Carmax Auctions

Economic and efficient
–
No fees
–
98% sales rate
–
1:2 dealer to car ratio

Real-time market feedback

Total control
60

Auctions: Disposing of Vehicles
61
1

Auctions: Disposing of Vehicles
Auction Summary

500,000 vehicles sold

Integrated operating system

Customer profiles

Industry-leading attendance and results
62

Process-driven
PROPRIETARY OPERATING PROCESS
Consumer
Offer
Purchasing/
Inventory
Management
Finance
Originations
Information Systems
64

Service Operations
Service Operations

Reconditioning and retail service

Reconditioning is majority of work
65

Service Operations
Competitive Advantages
1.
Reconditioning treated as manufacturing
2.
Centralized production planning
3.
People development
66

Service Operations
1. Reconditioning = Mfg.

Engineered process

Operating procedures on-line

Proprietary custom system – ERO

Maximize facility utilization
67

Service Operations
2. Centralized Production Planning

Sophisticated weekly planning algorithm

Balances capacity across all stores

Minimizes inventories
68

Service Operations
3. People Development

Structured training program

Technicians
69

70

71

72

Process-driven
PROPRIETARY OPERATING PROCESS
Purchasing/
Inventory
Management
Reconditioning
Finance
Originations
Information Systems
73

Business Office
Complex Transactions

An average transaction

How traditional dealers do it
74

Business Office
Why That Won’t Work For Us

Volume

Across states

Store growth
75

Business Office
10 Years Of Process Development

Over 4 million transactions

900 forms, 14,000 fees & taxes

Integrated systems designed around process
76

Business Office
Competitive Advantage

44 stores, 1 system

Seamless transactions across stores

Easily leverage workforce for growth
77

Business Office
78
1

Business Office
79
1

Business Office
80
1

Process-driven
PROPRIETARY OPERATING PROCESS
Purchasing/
Inventory
Management
Reconditioning
Finance
Originations
Information Systems
81

Sales Floor
Sales Force

Over 2000 sales consultants

Flat commissions benefit customer

Structured advancement program
82

Sales Floor
Simplified Process

Online financing

Step by step delivery

Consistent and easy to learn
83

Sales Floor
Performance Management

Systematic feedback

Goal oriented

Real time information
84

85

86

87

88

89

90

91

92

93

95

Process-driven
PROPRIETARY OPERATING PROCESS
Consumer
Offer
Purchasing/
Inventory
Management
Reconditioning
Finance
Originations
Information Systems
96

Information Systems
Two Primary Advantages

Process for development

Cumulative result of that process
97

Information Systems
Typical Dealer Systems

Few alternatives

Limited flexibility

High cost

Functionality does not exist
98

Information Systems
Our Advantage vs. Dealers

Started with a blank slate

Tuned to the concept

Re-applied learning

Half the cost

Highly flexible
99

Process-driven
PROPRIETARY OPERATING PROCESS
Consumer
Offer
Purchasing/
Inventory
Management
Reconditioning
Finance
Finance
Originations
Originations
Information Systems
102

Consumer Finance
Finance Originations

Maximize sales

Minimize risk

Optimize profitability
103

Consumer Finance
Maximizing Sales

CarMax consumer offer
–
Low no-haggle prices
–
Choice
–
Customer-friendly process
104

Maximizing Sales
Traditional Negotiations

Payment

Vehicle price

APR and term

Trade-in

Ancillary products
105

Maximizing Sales
Process Flow

Fast

Efficient

Technologically advanced
106

Maximizing Sales
Prime
Transmission
Application Routing
CAF
KMX App.
Routing
KMX App.
Routing
Prime #2
Prime
Decline
Non-prime
KMX App.
Routing
Non-prime
Non-prime
Non-prime
KMX App.
Routing
Customer
Views and
Chooses
From
Among all
Offers
107

Maximizing Sales
Technology Advantages

Connectivity

Scale

Data collection

Point of sale support

Accuracy / compliance
108

Consumer Finance
Minimizing Risk

Transparent loan originations:
Consumer risk
Vehicle risk
Intermediary risk
110

Consumer Finance
Optimizing Profitability

3rd party finance company selection:
CarMax-specific programs
Stability and scale
Balanced agreement
111

Consumer Finance
Finance Originations

Maximize sales

Minimize risk

Optimize profitability
112

113

Growth Plan
Organic Growth
 Creates value
 Not acquisition dependent
 Not 3rd-party constrained
115

Growth Plan
Opportunity Scale
 Market:
 Currently:
$265 Bn
18%-20% of U.S.
 Mature stores: 8%-10% market share
116

Growth Plan
Expanding The Opportunity
 Market share experience
 Higher-density storing
Charlotte
Orlando
Las Vegas
Richmond
117

Growth Plan
Mid-Sized
Markets:
Large Market
Satellites:
FY02
Greensboro
FY03
Sacramento
Knoxville
FY04
Las Vegas
Kansas City
Birmingham
Memphis (Oct.)
Louisville (Feb.)
CHI:Merrillville CHI: Oak Lawn
ATL: Lithia Springs
CHI: Glencoe (Nov.)
Mid-Sized Market
Satellites:
YE Total (Used): 35
CHA: South Blvd.
ORL: Sanford
LSV: Sahara (Jan.)
48-49 40
118

Growth Plan
Store Goal:
Focus:
YE Total:
FY05
8-10

Mid-sized

Satellite
FY06
10-12

Mid-sized

Satellite
FY07
12-14

Mid-sized

Satellite

New large market
56-59 66-71 78-85
119

Growth Plan
Sales Ramp
Year 1 Year 2 Year 5
Year 5
Standard
Superstore
$ mm
Satellite
Superstore
$ mm
70% 88% 100% $60-120 $43-86
Store Operating
Profit
0.7-4.2% 2.9-6.3% 4.0-8.5% $2.4-10.3
$1.6-7.3
120

Growth Plan
Land & Bldg.
FF+ E
Inventory
Initial CarMax Cash
Standard ($mm)
$12.6-20.0
1.3 - 1.6
5.3 - 9.2
$19.2-30.8
Satellite ($mm)
$ 7.5 -10.5
0.5 - 0.8
4.8 - 6.9
$12.8- 18.2
Cash Recovery
Sale/Leaseback
Inventory Financing (@ 90%)
Net CarMax Cash
(@ 90% Inventory)
$12.6-20.0
4.8 - 8.3
$ 1.8 - 2.5
$7.5-10.5
4.3 - 6.2
$1.0 - 1.5
121

Growth Plan
Historical

Comparable Standard and Satellites (FY03)
(CAF normalized)

Total CarMax (FY03)
Prototypical

Standard (Yr 5, CAF normalized)

Satellite (Yr 5, CAF normalized)
Leading Retail Comparison (‘92-’02 Avg.)

Home Depot

Wal-Mart
ROIC
18.7%
12.9%
14.9%
16.6%
14.6%
12.4%
122

Growth Plan
Growth Plan
Sales Growth
 4-year goal: $8 Bn
 Comp used-unit growth : 5%-9%
 New store openings : 15%-20%
Profit Growth
 New store openings
 Store margin expansion
 Corporate overhead leverage
123