Carmax and Carvana: If you can’t negotiate, will you pay too much?

By now, most people are familiar with used car retailers Carmax and Carvana. Carmax has over 195 retail locations throughout the country, and promise customers an easy, no-haggle car buying experience. As of this writing, they show an impressive inventory of over 72,000 vehicles. Carvana follows a similar no-haggle model, but offers a completely online car buying experience. Pick out your car, arrange financing, and have it delivered to your home or pick it up at one of Carvana’s novel car vending machines. Carvana’s online inventory is currently over 26,000 vehicles.

Exterior image of a Carmax dealership from
Image from Shutterstock

Both Carmax and Carvana are striving to offer you a simplified experience. By offering fixed no-haggle pricing, they’re cutting out the time-consuming and unpleasant back and forth that you might encounter at traditional dealerships. But there are trade offs. At Carvana, you’re buying a used car totally sight unseen. Both Carmax and Carvana offer a buy-back guarantee period, where you can back out of your purchase if the car isn’t right for you, or if there’s a problem with the vehicle. And both offer some form of limited warranty. But most importantly, when the dealership sets the price and you can’t negotiate, are you actually getting a good deal? As it turns out, sometimes you are, and sometimes you’re really, really not.

How do Carmax and Carvana’s prices compare to each other?

First, I was curious to see how Carmax and Carvana’s prices compared to each other. I tried to find similar cars in each inventory, with similar mileage, trim, and features, and similar vehicle histories. I found 2013 Toyota Corollas that were priced within about $100 of each other, a $300 price difference between two 2016 Chevrolet Traverses, but discovered almost a $1,900 price difference between two examples of Acura’s 2018 TLX. There was no obvious reason for the price difference on the Acuras. Carvana’s example was tagged as a “Great Value” on their website, and perhaps was starting to age in their inventory which would explain the lower price. The cars were pretty much identical otherwise.

But are these good prices?

Next, I wanted to check each car against Kelley Blue Book. If you aren’t familiar with KBB, they’re the standard consumer-facing automotive valuation tool used today. From their website, you can get an approximate value for a car as a trade-in at a dealership, or what the price should be to purchase it on a dealer lot, or what the price would be if you purchased from a private party instead. Checking used car dealership retail values on KBB shows you many different numbers: what the Fair Market Range should be for that vehicle, a number called out as a Fair Purchase Price, and another number that is the Typical Listing Price (TLP) – that’s the one I will be using for comparison. Compared to the typical marketplace listing, I wanted to see whether Carmax and Carvana’s fixed, no-haggle prices were better or worse.

Screenshot of Kelley Blue Book valuation.
Sample of the array of values that the Kelley Blue Book website can generate

The Chevrolet Traverses – Not bad!

Let’s start with the 2016 Chevrolet Traverses. Carvana’s Traverse was priced at $22,300, and was actually 0.7% under the KBB TLP. At Carmax, their Traverse was $21,998, and appeared to be an even better deal, at 3.28% under KBB TLP. And this is compared to KBB’s standard used retail values. Used cars that are Certified Pre-Owned (CPO) will usually be more expensive. They’ve gone through some form of inspection and typically come with a limited warranty. KBB’s CPO pricing on these two Traverses raised their value, and now these two crossovers now look like even better deals. At Carvana you’d be saving 3.28% compared to KBB CPO, and at Carmax, 6.31%. Not bad!

The Acura TLXes – Maybe?

Things got a little spotty with the Acura TLX, however. At Carvana, this “Great Value” car with a price of $30,100 was 2.88% over KBB TLP at standard retail, but shrunk to 0.98% over if you consider CPO valuation. At Carmax though, their TLX at $31,998 was 8.82% over KBB TLP (or 6.82% over for CPO). Maybe Carvana’s unit is actually decent value. And even more so when compared to Carmax.

The Toyota Corollas – Absolutely not.

Carvana and Carmax both looked like a raw deal when comparing the 2013 Toyota Corollas. Carvana’s car at $12,700 was a whopping 28.96% over KBB TLP valuation. And Carmax wasn’t much better. Their $12,599 Corolla was priced 27.38% too high compared to KBB. It’s worthy to note that KBB couldn’t provide CPO values for these Corollas – maybe because they’re a little older. Regardless, I doubt that any type of official CPO designation (even on a 6 year old Corolla) would justify a 28% price premium.

But why?

So, what’s the deal? It is just a function of the type of vehicle, the age, or the cost? Maybe both retailers showed such competitive pricing on the Traverse because they have inventories flooded with popular three-row crossover SUVs. But with the Corollas, maybe they’re banking on the strong reputation for quality that the Corolla name carries. Or maybe they hope that buyer’s with more limited budgets will be more willing to take what they can get, will be less well-informed, or will just ask fewer questions.

Next, I was curious to check out some other vehicles, to make sure I didn’t inadvertently select three poor examples. I chose three additional different types of vehicles from Carmax and Carvana and evaluated them against KBB pricing, and these results were also all over the map. At Carmax, I found a Honda CR-V that was priced 6.03% too high, a Chevrolet Silverado 1500 pickup truck that was priced 0.73% below KBB, and a smart fortwo that was priced over KBB values by 6.54%. At Carvana, there was a Cadillac Escalade that was 4.76% over KBB, a Nissan Altima that was basically right on the money at 0.54% below, and a Kia Soul that was a full 25% too expensive over KBB numbers. I used KBB CPO TLP values wherever they were available for all examples.

Are Kelley Blue Book prices even real?

Next, I wanted to determine whether KBB pricing is even realistic or not. These values are great to know, but can you actually find used cars for sale at prices closer to these magical TLP numbers?

Going back to my original three examples, the answer is yes. A search for 2013 Toyota Corollas shows many units closer to KBB pricing (although, it also shows plenty of cars priced similarly to Carmax and Carvana – perhaps this is the power of the Toyota reputation and corresponding residual value in play). For the Chevy Traverse, there are many vehicles available at KBB numbers (including at Carmax and Carvana) but there are also vehicles available at traditional dealerships with similar equipment and mileage at prices well below Carmax and Carvana, and thus also below KBB. And for the Acura TLX, there are many cars out there with similar mileage and equipment at or below KBB prices.

Exterior image of a Carvana vending machine from
Image from Shutterstock

In conclusion…

When you take away your ability to negotiate the price of your used car, you (hopefully) gain a more pleasant shopping experience. And in the case of Carvana, you never need to put on pants or leave your house. In these examples, sometimes you’re also getting a decent deal, but other times you’re paying more than 25% too much. On average, Carmax is 6.62% higher than KBB. At Carvana, you might be paying 9.32% higher than you should – but hey, someone has to pay for those big vending machines.

It’s up to you to decide whether the ease and convenience afforded by shopping at one of these fixed price retailers is worth the price premium. Or, work with me! I’ll do all the legwork for you and find you the right vehicle, for the right price. Thank you for reading!

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