‘As painful as disruption is, it’s not negotiable’ says CarMax’s CEO

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Transcript

Diane Brady: Leadership Next is powered by the folks at Deloitte who, like me, are exploring the changing roles of business leadership and how CEOs are navigating this change.

Welcome to Leadership Next, the podcast about the changing rules of business leadership. I’m Diane Brady. 

You know, few industries are more at the center of innovation and disruption than the auto sector. We’ve all read about the energy transition, the impact of inflation, AI that’s made the experience of driving more akin to riding an iPhone on wheels. Well, we recently caught up with Bill Nash. He’s president and CEO of CarMax. That’s one of the nation’s largest retailers of used cars and he has a very different take on the state of the car industry. He had interesting things to say about Tesla, the trajectory of innovation, as well as what Americans really want to drive. Take a listen.

[Interview begins.]

I’m here with Bill Nash, the president and CEO of CarMax. Bill, you run the largest retailer for used cars. I’m sure we all know it well. Let’s start, first of all, welcome. And second, give us some sense of what you’re seeing out there. I can’t think of a better barometer of the nation’s economy than the position that you occupy.

Bill Nash: Yeah, well, first of all, thank you for having me today. It’s great to be here. We do occupy a position that gives us a little bit of insight into the consumer on a day-to-day basis. They have been pressured for a little while because of the inflationary pressures just across the board on what they’re buying every day. But when it comes to autos, that’s certainly no exception as well. You know, with COVID and the price run up after COVID, used cars, new cars have just become more expensive and then you add on top of that interest rates. So, the good news is prices are starting to come down a little bit, but the average consumer is trying to juggle. Where they used to be able to get in a car for, let’s say, $400 a month, that same car today between price inflation and interest rates is $500 or north of that. So, there is a feeling from the consumer that they’re having to juggle a lot of different things right now.

Brady: You know, it’s interesting, we’ve seen this big push toward EVs. I know you just had an EV report yourself. Let’s start with what I think of as the elephant in the room, almost the Tesla effect. Can you give me some sense as to how that’s changed the calculus of what we want, hope, and dream for in a car, used or otherwise?

Nash: Yeah, I think we’re in an interesting period right now. I mean, certainly EVs are here to stay and with a lot of the manufacturers putting targets out there of when they’re going to stop producing a gas combustion engine to go to fully EVs, although that’s down the road, certainly the early adopters are out there buying EVs now. And I think in the latest year, I think about 8% of new cars sold were EVs. Now, they have to be sold as a new car first in order to make it o the used car stream. So when we look at our business right now, it’s about a percent of the total that we sell is pure EVs, with about 5 to 6% in the hybrid EV space. That being said, I do think that as more models and options become available, as the pricing comes down on them, I do think consumers will eventually start to go there. You know, right now I think they’re still a little bit high for the average consumer, but I think that will change. And we’re trying to put ourselves in the position, just like we’re the largest retailer of used cars, to be the largest retailer of used EVs. So, we’re going to make sure that we’re kind of in that spot. And as you can imagine, there’s a lot of folks who have a lot of questions on EVs, whether it’s the battery, the range, the chargers, what kind of chargers should they have? And so what we’re trying to do is just make sure that our sales associates are educated, our technicians are educated so that we can handle that and really help the customer figure out what’s the right vehicle for them.

Brady: Well, let’s unpack that a little bit, because we have such a finely tuned calculus over a used car. You know, tons of information, a lot of sense of which brands hold up, which models hold up, etc. What are you educating your staff on? What is the calculus for a used EV? Is it really all about battery life? Are you seeing any trends yet? To your point, it’s nascent, but …

Nash: Yeah, I think first of all, if someone’s in the market for a used EV, this probably won’t surprise you. The big thing that they’re concerned about is how good is the battery? Because that is a big part of the valuation of that car. If you think about it, EVs have a lot less parts as compared to a vehicle that has a gas combustion engine. So, that is really where the consumer is, you know, how good is the battery, and so we’re working with partners to actually be able to measure the battery life on it, on a used EV, to give some assurances to the customer.

But outside of that, they’re also just, they have lots of questions about charging and how much they should charge, what kind of charger they should have, what type of EV is best for me as far as the different ranges and what my daily life looks like. So part of our job is help educate them. And interestingly, some customers think that they’re in the market for an EV and when they start asking questions and we start educating, they realize, well, that really doesn’t suit how I live my lifestyle, maybe that’s not the right car for me right now, or vice versa. Someone may be thinking that they wanted a gas engine and realize they’re only driving so much and then all of a sudden they realize an EV might work out really well for me. So a lot of it is about the education at this point.

Brady: I do think this is such an interesting neighborhood to be in, if you don’t mind, for a minute, in part because we are learning so much. Let’s talk about the consumer. Is it really a case where, look, if you’re a light urban driver with access to a lot of charging stations, of course, EVs are right for you? So that your locations are reflecting that. And in other parts of the country or more long-distance drivers, it’s not? I mean, that sounds very simplistic. So give me a sense as to how you think this is going to play out in terms of demand.

Nash: Yeah, well, if I look at all the EVs that we sell, as you can imagine there’s certain parts of the country where you sell more than other parts of the country and certainly charging stations play a part in that. If consumers feel comfortable, they have plenty of chargers around them, because there is some range anxiety still for folks, who may be like, well, what if I go somewhere and I can’t find a find a charger? But again, I think the other way this is going to unfold, first of all, I think the prices need to continue to come down a little bit to become a lot more affordable. I think as the consumer realizes what their charging options are available in their area, but they also have to look at their lifestyle. Are they taking long trips? Where are they going on their long trips? So there’s a lot more that goes into that than just say, okay, well, how many chargers are basically close? And they may even in more rural places. Look, you can have an EV, especially if your lifestyle is one that, hey, you’re just driving it back and forth to work and you’re really not taking it long distances. Well, it may be a fine place for you to have one. So it really depends on the person and what their lifestyle is and what they’re looking for, the needs that they have.

Brady: You know, you have to be a friend to so many in the auto sector. It’s such a fascinating sector to be in. So perhaps this is just a factual question with regard to top trade-ins and such, but are you seeing any trends that are on your radar? You want to put on ours on that front that perhaps are indicative of different ways of buying or even different types of models that we’re seeking out?

Nash: As far as models that consumers are seeing, it really hasn’t changed much over the last few years. I think the big change in the industry, I’ve been doing this for a long time and I think probably I’ve seen more change in the industry in the last five or seven than I saw in the last 15 years before that. And a lot of that is being enabled by technology advancements, but it’s also being pushed by consumer expectations. You know, buying a car, whether it’s a new car or a used car, it’s a considered purchase and it’s a complicated transaction. People have questions, they may need to get credit. They have a vehicle that they have to trade in. Maybe they’re upside down in the trade. And so while it’s a very complicated transaction, consumers are expecting more. You know, when we got in the business, the only way to buy a car was to go into a physical dealership. We’re back in the nineties, the typical customer visited seven different dealerships before buying. Well, they don’t do that anymore. There’s a lot more transparency out there. And so I think the big transformation in the industry is really being driven by the consumers wanting a more simple and seamless process, which is one that we’ve really been focused on and kind of how we’re approaching the future of CarMax.

Brady: One of the stereotypes that I think about is the demographic issues in this feeling of millennials and Gen Zs feeling different about car ownership in general. Have you noticed that or do you think we’re perhaps forgetting what we were like at Gen Z? I mean, I just, I’m curious if you think that car ownership is going to continue to be an aspiration.

Nash: Yeah, it’s interesting. You know, I remember when I turned 16, I guess I could actually get my license before 16 and I couldn’t wait to get my license. And today there’s folks that have chosen to delay getting the license. But it is interesting, I think what happens is people are just waiting longer versus getting them as soon as they could. It’s just taking a little bit longer to get the license. People still like the freedom of having a vehicle. Certainly in the cities where you have ride sharing, that’s a great solution. But you know, you get outside of the dense urban populations, people want to have that flexibility of vehicles. And so it was interesting when ride-sharing was first coming up, there’s a period of time where the number of vehicles households owned actually went down a little bit. But then shortly after that, they started to go back up again and they really haven’t receded so…

Brady: Everyone becomes a driver.

Nash: What’s that?

Brady: I said maybe we’re all becoming drivers.

Nash: Maybe so. But I do think there’s something to people like that flexibility. You know, even though I use ridesharing a lot, I still like having the flexibility of having the vehicle when I needed to go different places. So I think that’s the change you see is that people just wait for that initial purchase, they’re just waiting a little bit longer.

Brady: I have to ask, maybe you’re one of these people with 40 cars, but what car do you have?

Nash: So I am not a person with 40 cars. I actually I love to find a good car and then I drive it forever. So even though I obviously see cars all the time, I actually drive a Cadillac Escalade right now, and I have been driving since about 2015, the same truck.

Brady: Very nice. Can you give us a bit of your backstory as to how you got into this? You mentioned, of course, your own fascination at 16. Where did you grow up?

Nash: I actually grew up on a farm. I grew up on a farm in a kind of rural part of Virginia, western part of Virginia. I’ll tell you, I don’t think there’s a traditional story of how you get into becoming a used car salesperson and, certainly, if there is, I probably am not that traditional story. I actually am an accountant by training and I went into public accounting and fairly early on I didn’t want to do that my whole life. But I’m also one that feels like you can have lots of good learnings, even doing things that aren’t your dream job. So I did that and ended up getting my license and then decided to make a career change out of public [accounting] into the corporate sector when my wife and I got married. And I actually started working for the parent company, which a lot of folks forget, the parent company of CarMax is Circuit City. I started working for Circuit City and was working for them when we started the CarMax concept. And then I came over full time, totally changing it once again and getting out of the accounting side of things and getting in on the operations. I came over to run the auction business.

Brady: What an unusual parent. Can I point that out? Like, does it matter?

Nash: I think it does matter. You know, the reason Circuit City started CarMax, you may remember back in the eighties and Circuit City was the retailer. And they had this this mentality about all about customer experience. And think back in the eighties and the early nineties before the Internet and all the technology advancements, you would think about the VCR, well people didn’t know how to use that. And so what did they do? They went to Circuit City where they had a great customer experience and explain all this. Well, Circuit City was trying to figure out, okay, how do we continue to grow? And so what are the other areas that we can disrupt in? And obviously the used car industry is highly fragmented. We compete with 35,000 other dealers that sell [one] year- to 10-year-old cars and not only is it highly fragmented, it’s also, at the time, it was a terrible customer experience. I mean, nobody wanted to walk into a used car dealership back in the nineties, much less work for one. And so they just thought like, look, we can bring our retail experience, our customer experience, we can bring that to the table and really take the things that folks don’t like about buying a used car, remove that and make it an enjoyable experience. And oh, by the way, our mission is to bring integrity and transparency to every interaction. So it’s a completely different way to think about it from a used car perspective.

Brady: It’s true.

Nash: I think it is important to remember kind of where we came from.

Brady: Yeah, the term used car salesmen didn’t always evoke what you just talked about. I think of the movie Fargo and you know, yeah, as the daughter of a carpet salesman, I feel both the pain and the pleasure of the job that you’re in. Let me ask you, in terms of when you look ahead, where is the most exciting opportunities for growth that you see?

Nash: I think both for us and the industry, I mean, like I said earlier, this is an exciting time to be in the industry. We’ve seen so much change. And I don’t see any reason why the change is going to slow down. If anything, it’ll continue to accelerate. I think that the biggest barrier right now we’re really focused on is as I spoke earlier, you know, there used to only be one way to buy a car and that was you go into a store, you work with someone in the store and you buy. Fast forward toward today and we’ve really been focused on this omnichannel experience, which is really, it doesn’t matter how you want to buy a car. You know, if you want to buy 100% online and have it delivered to your house and never have to interact with the person or step into the showroom, great. If you are, like a third of our customers, who want to do everything inside of a store, that’s great. But if you’re one of those customers, which is the largest subset right now, they want to progress on their own schedule. They want to do some things online, they want to do some things in-store, and they want it to be a seamless connection between the two. That’s where I think a lot of growth is going to come in the future, because it’s very hard when you think about a considered purchase like this for customers who are on physical assets in stores, they’re on digital assets, they’re back on physical assets and trying to keep that journey going through, not having to repeat or explain things that they’ve done, the better that you can do that, the more simple and seamless way you can do that which is really brought to life through technology and digital capabilities, great associates, physical footprint, bringing all that together, it’s really difficult, and connecting it so that in our case, several thousand sales associates have to be there where every single customer is at any given point. And that customer needs to know exactly where they are, even though they may have been to a couple of stores and in some things online.

Brady: It’s an emotional purchase, isn’t it?

Nash: It is. I think that’s a great opportunity going forward for folks that can really nail that experience. And I think outside of that, gosh, you’ve got technology advancements with AI, you’ve got the EVs, which we’ve already talked about. Down the road a little further you’ve got to start thinking about autonomous vehicles. So there’s just a lot to be excited about, a lot of challenges, but we also see them as a lot of opportunities.

[Music starts.]

Brady: We’re now starting to see companies deploy AI across the enterprise. The challenge for leaders is how to close the gap between the promise of gen AI and the results achieved so far. We spoke with Jason Girzadas, the CEO of Deloitte US, which is the long-time sponsor of this podcast. Here’s what he had to say.

Jason Girzadas: I think every CEO and board interaction and conversation that I’m a part of proves the fact that the promise of AI is widely held and the hope is far and deep that it creates business value. But there’s challenges to be sure. What we’ve seen is that the probability of success increases dramatically with strong executive sponsorship and leadership. There has to be a portfolio of investments around AI as well as to link the business ownership with technology leadership to see the value of AI-related investments. Over time we’re optimistic and confident that the value will result, but it will be a portfolio where other short term opportunities for automation improvements around productivity and cost takeout and then longer-term medium-term opportunities for business model innovation that are truly transformational. So this is a classic case where it won’t be a single approach that realizes value for AI.

[Music ends.]

Brady: You know, Bill, I have to point out, for 20 years you’ve been on the Fortune Best Companies [to Work For] list, so I’d be remiss not to mention that. A., congratulations, but…

Nash: Thank you.

Brady: B., what does it mean to be a best company? I mean, especially in the context of a very far-flung workforce that you have? How do you do work on that?

Nash: Yeah. Listen, the role that I am into, people ask me all the time what do you worry the most about it? There’s lots to worry about but the, the answer for me is very clear. The thing that I worry the most about are our people and our culture, you can’t separate the two, they’re so interlaced together. We are very proud to be on the Fortune Best Places to Work for 20 years. It’s not by an accident. We don’t do what we do to get on that list, but it is a great validation. I’m a big believer, and I even saw this at Circuit, in today’s world, every organization can be copied, CarMax can be copied with varying degrees of success. Every organization, whether you sell something, whether you have a service, but what can’t be copied are your people and your culture, and they’re only sustainable if you take care of them. If you don’t take care of them, they’re not even sustainable, then there’s no difference.

Brady: Right.

Nash: That’s the way I view the world is like our people are the reason we’ve been successful for the last 30 plus years. Our people will be the reason we’re successful for the next 30 years. So I spend a lot of my time with our associates in the field. I spend a lot of time doing townhalls and answering questions and talking about what’s going on because knowing what the associates voice, knowing what concerns them, what keeps them up at night, I want to know that so we can continue to make the organization better. So yes, we are very proud of being on that list but that’s also just, that’s who we are. That’s part of our DNA. We’re very much a people first culture. It’s always been that and we will continue to be that way as long as I’m here.

Brady: You know I want to ask one other thing, because, again, I think you have such interesting insights into parts of the economy we don’t always pay enough attention to. And one is the fact that so many of the automakers have been really intertwined with China. We’ve also seen brands from China like BYD, etc. How have the tensions with China impacted your business, if at all? Again, I know you’re in a different portion of it, but I do often think about the auto sector because we’ve vilified that part of the world and yet that’s a part of the world where automakers have really found both a market and suppliers.

Nash: Yeah and it’s a great question. I mean, we play a little bit different role. We don’t have some of the concerns that the automakers do. Obviously, for us, we’re going to sell what consumers want and what’s available out there. So we don’t have even with the supply disruption with COVID, that kind of thing, of course there were some parts disruption, but we don’t really face some of the challenges that the automakers are necessarily facing. And again, what we do is we focus on what are our consumers looking for, and let’s make sure that we have the available inventory to meet their needs.

Brady: Excellent. Anything else you’d want to add, especially about what’s around the corner that we can look forward to next?

Nash: Yeah, well, what I would tell you is around the corner is certainly going to be change. It is not going to stay static and for organizations that don’t make that change, I think the future — and that’s not necessarily even just in our industry, I think just in general — it’s ever evolving. And I think organizations that can evolve and meet the change are the ones that will remain relevant.

Brady: Bill, talk a little bit about the demand. Since we’re looking at EVs now coming into the used  market. We have hybrids, the regular cars. What do consumers actually want when they come into your showrooms?

Nash: Yeah, so look there’s a lot of press on EVs and rightfully so a lot of manufacturers have stated goals out there for switching the whole fleet over to EVs versus the gas combustion engines. I think we’re early, especially on the used side. We’re early into the adoption. And keep in mind, last year, I believe of new cars that were sold, only about 8% of them were EVs. You have to sell the new car first, be on the market, and then they become a used car. When I look at our own business, out of all of our sales, only about 1% of our total sales is pure EV. Now, if I take EVs plus hybrids, it’s more of like a 5 to 6% of our total sales. But I would expect that number to continue to go up. And that’s one of the things we’re focused on, is organizations, look, we’re the largest retailer of used cars to make sure we’re the largest retailer of used EVs. And so making sure that our associates, whether they’re our sales associates are equipped to handle the customers’ questions or technicians are equipped to work on those vehicles, [that] we have the infrastructure, the right partners, chargers, that kind of thing. We’re focused heavily on that right now because we know it’s only 1% today, but it will be ramping up over the next few years and you can easily see where by 2030, it could be 15 or 25% of our sales.

Brady: Do you think the hybrid category is going to grow to the same extent? Because that really was to some extent a transitional vehicle.

Nash: Now, I think we’re in a period here where hybrids may actually grow a little bit quicker than EVs, just because I think consumers, they still have some range anxiety. I think, too, they’re also, you know, they’re watching the purse strings and watching their wallets. They’re focused on overall cost. And some of the EVs are a little bit outside of the range of the average consumer. So they’re looking for alternatives. So I think it’ll be interesting to see, you know, there was a big push for EVs, to see if hybrid actually you’ve got some manufacturers that are focusing a little bit more on hybrids. So we’ll see how that pans out.

Brady: There’s been such a luster around Tesla, you know, and I’m curious why people buy a Tesla, used or otherwise. Is it, do they come in looking for the same sort of specificity? Does it feel like a status buy? Can you give us some sense as to how the behavior may be different for that group of customers?

Nash: Yeah, I don’t know if it’s necessarily different than other customers that are looking for EVs. I mean, obviously Tesla has been in the marketplace for long and they are very well known and they’ve done a phenomenal job really bringing the spotlight to the EVs. So I think, sure, in the early days there’s a lot of early adopters who wanted to get on that. But the reality is there’s a lot of folks that were looking for EVs and Tesla’s a great option. So I wouldn’t necessarily say that they are different than other consumers that are looking for EVs. But certainly there’s been more early adopters for sure.

Brady: Has there been a used Cybertruck yet? Feels like early days.

Nash: Yeah. We have not sold a Cybertruck yet.

Brady: What do you think of the Cybertruck?

Nash: Um, I’m sure it’s for some people it’s not. It’s not personally for me. It’s an interesting design. I don’t know. It’s got a following for sure.

Brady: Spoken like a Cadillac driver. You know, when I look at the history of CarMax, you were born, you know, basically out of the parent of Circuit City and there is an industry that’s undergone a lot of change, consumer electronics. I mean, talk a little bit about the project that you’ve seen there and how that’s even informed your strategy at CarMax.

Nash: Well, I tell you, having spent time at Circuit and then seeing what happened at Circuit, I do operate with a sense of a controlled sense of paranoia all the time. Because, you know, it’s a good example. You have to continue to evolve. You have to continue to make some bets on where the customer is going and make sure that you keep up with the times. And as we’ve  discussed, there’s a lot of change going on in the industry. There’s a lot of change going on from what customers expect in the experience. And I think you’re looking at a Circuit, who were very, very successful and look, they were thinking about future thinking about growth, but then all of a sudden you realize their space got really disruptive and what they used to rely on with the customer experience and being very informed on the product became less of a selling point for consumers because they were more educated, they had the internet, they can learn about all these new electronics versus having to go in and speak with sales consultants.

Brady: And so it’s interesting though, because there is this innovator’s dilemma when you have such a large footprint in in an industry that is just itself being disrupted. I’m really curious when you’re living through that, you see what’s coming and yet there must be a certain degree of impotence of how to change it because you have to serve your existing customers. You know, you want to pivot to the future. What was that like?

Nash: Difficult. You know, it’s a challenge. We are an organization that [was] set up to be a brick-and-mortar organization, and we’ve run that way, we ran that way for 25 years. And all of a sudden, okay, we’re going to pivot and we think the customer is going here. We need to have more of an omnichannel offering to be able to do online sales, to do in-store sales. You have to do a combination. We really got to a point where we simply stepped back and said, Hey, look, we are really good at the in-store experience and we can keep doing this, but there’s other ways to buy a used car and odds are consumers are going to start to expect more. So what do we, it’s almost like, what do you want to do when you grow up? And so we really thought about it and we think about the different markets people can buy a car in and we want to be great in all of them. But in order to do that, it’s a complete overhaul. I mean, you have to have different skills. You have to have different capabilities. As you bring those on, you have to insulate a little bit from the mothership, because there’s a tendency to reject the unknown, reject the new. You have to get some early wins. At some point, you have to bring your, what I would call your e-commerce piece, your digital piece, together with the brick and mortar piece. Again, that’s an area where we can see conflict. So yeah, disrupting yourself is not easy. Having gotten on the back side of this, obviously it’s harder than I thought it was going to be, it’s more expensive than I thought it was going to be. But the reality is if you don’t disrupt yourself, if you don’t continue to evolve, if you think that you’ve arrived, you’ll turn the lights out. You’re going down the wrong path. You will become irrelevant. In this day and age there’s just too much to going on. And as painful as disruption is, it’s really it’s not negotiable. You have to be able to continue to evolve. And I think we’ve put ourselves in a great position going forward that very few competitors will be able to match. And again, being in a highly fragmented market, the less competitors, that just means more market share for the folks that they can survive.

Brady: Disrupt or be disrupted.

Nash: That’s exactly right. That’s exactly right.

Brady: Thanks for joining us, Bill.

Nash: Thank you.

Brady: Leadership Next is edited by Nicole Vergalla. Our audio engineer is Natasha Ortiz. Our producer is Mason Cohn and our executive producer is Hallie Steiner. Our theme is by Jason Snell. Leadership Next is a production of Fortune Media

Leadership Next episodes are produced by Fortune‘s editorial team. The views and opinions expressed by podcast speakers and guests are solely their own and do not reflect the opinions of Deloitte or its personnel. Nor does Deloitte advocate or endorse any individuals or entities featured on the episodes.