Used-vehicle retailer CarMax is buying a $50 million stake in vehicle listings site Edmunds in a bid to gain further insight into vehicle listings and the shopping process in general as it rolls out its omnichannel retail strategy.
The investment, announced Wednesday, Jan. 29, comes as Edmunds moves to eliminate 129 jobs by March. The companies didn't disclose how much of Edmunds that CarMax is buying but did describe it as a minority stake.
CarMax said it is buying a minority stake in Edmunds. Here are the basics of the deal.
Amount: $50 million for an undisclosed percentage of Edmunds
What CarMax could gain: Further insight into the vehicle shopping process, especially as it relates to listings
What Edmunds could gain: Cash, as it restructures; opportunities to expand and improve its vehicle shopping process
CarMax CEO Bill Nash said Edmunds' proprietary content, market insights and user experience related to car buying and selling will help the retailer, the biggest seller of used vehicles in the country, deepen its relationship with online shoppers.
"Consumers trust Edmunds for its in-depth, expert-driven automotive editorial content and unbiased reviews," Nash said in a statement. "Edmunds has also made significant investments in digital innovations over the last several years that align with our continued focus on enhancing the customer experience online."
Neither CarMax nor Edmunds would make a company executive available for an interview. A CarMax representative said the retailer would not comment beyond what was in the deal announcement.
Edmunds declined to elaborate on the investment, including whether CarMax will hold any seats on Edmunds' board.
CarMax's investment in Edmunds took some analysts by surprise.
"I wasn't aware that they were looking for investments in online companies or any company of this type," said Seth Basham, an analyst with Wedbush Securities. He noted CarMax has made smaller investments in the past, such as a $5 million stake in auto-service provider RepairPal in 2017. "But this is certainly a little bit different and a little bit bigger."
CarMax's investment in Edmunds is happening amid broader disruption in the used-car space — notably from online startups such as Carvana and Vroom.
Basham said there has "been some controversy" around CarMax's listings on third-party shopping sites. The retailer's executives feel as though CarMax sometimes "doesn't get a fair shake" against competitors' vehicles, he said. Their belief is that CarMax's vehicles do not get enough credit for their features and quality and their ratings suffer as a result, said Basham, who met with CarMax executives just a few weeks ago.
"The idea from my perspective related to that would be that they can better learn how to list their cars, such that they become better ranked," Basham said. "So, being able to test and learn, so to speak, with more data and insight from Edmunds could help."
Oppenheimer analyst Brian Nagel wrote in a research note that his company does not view the investment as a "game changer" for CarMax.
"We are optimistic, however, that the strategic alliance will serve to further accelerate the digital transformation" of the retailer, he wrote.
CarMax is expected to complete the rollout of its omnichannel strategy by the end of February 2021, although most of its markets will be covered in some form by the end of this month. Omnichannel refers to creating a seamless buying experience, whether the consumer is shopping from a computer, mobile device or in the dealership.
"CarMax can probably integrate some of Edmunds' data, content and some of their technologies, particularly their digital [retailing] technologies," said Peter M. Zollman, founding principal of AIM Group, which analyzes third-party vehicle marketplaces. "As for Edmunds, they get cash. And from all indications, they needed it."
Edmunds said in January it plans to eliminate 129 jobs by March — 122 at its Santa Monica, Calif., headquarters and the rest in a satellite office in Detroit. The cuts are part of a restructuring that the company said follows a series of strategic moves to reposition the business.
Edmunds employed more than 550 people prior to the job-cuts announcement. The company did not elaborate on the reasons for the restructuring. In an emailed statement last week, Jamie Epstein, vice president of employment experience for Edmunds, told Automotive News that Edmunds needs "more time and preparation" to evolve the business "to transform the way we serve clients and consumers in a performance-oriented way."
The restructuring, she added, "will refocus the company on its core revenue drivers so that we are in the most financially healthy spot for future growth."
In a follow-up email, an Edmunds spokeswoman declined to identify which revenue drivers will be given priority.
The company said it has invested in website improvements in recent years, as well as moved to a performance-based advertising model "in response to shifting market conditions."
"We are confident in our ability to maintain the fullest level of support and oversight of our products and services during this period, and we are currently focused on upcoming initiatives that we believe will yield both near-term economic benefit and long-term competitive advantage," Edmunds spokeswoman Talia James-Armand said in an email.
As a third-party vehicle listings site, Edmunds offers shoppers the ability to review vehicles and pricing information. Its history dates to the 1960s, when it produced printed vehicle pricing guides. It currently counts 7,000 dealership clients.
"We're excited for this opportunity to collaborate with another well-respected industry leader that is dedicated toward making car shopping easier for consumers," Edmunds CEO Avi Steinlauf said of CarMax in a news release. "With our expanded resources and capabilities, we're confident this will be a mutually beneficial partnership for many years to come."
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