CarMax results point to volatile used car market

CarMax’s recent results point to hotspots that extend well beyond the used-car industry and hint at some of the fires that could erupt in the paycheck-to-paycheck economy.

The data shows that CarMax’s retail used vehicle unit sales were down 6.4% year-over-year in the quarter ended August 31.

And unsurprisingly, in an environment where management has said affordability remains a key consideration, inflation is a significant headwind. But in addition, as CEO Bill Nash said on the earnings call, consumers are shifting from big items to small purchases.

We argue that means spending tens of thousands of dollars on an item suddenly becomes less palatable when you have to put groceries on the table.

Some things remain firmly in place, such as the great digital shift and the adoption of a connected, omnichannel approach to buying just about everything online, even cars.

No less than 11% of CarMax’s retail sales were made online, compared to 9% in the same quarter of the previous year. About 53% of its retail sales were omnichannel sales.

Management also noted on the call that CarMax has sourced approximately 20,000 vehicles through MaxOffer, its digital appraisal product for dealers. This is a 130% increase over last year’s period.

The total revenue from online transactions was around 30%. This is up from 28% previously.

As for some of the warning signs: while credit metrics remain relatively strong, the company’s loan loss provision has seen a $40 million change and the reserve balance is 2.9 % of receivables, whereas it was 2.8% in the last quarter. It’s a (relatively) small move, but the stockpiling indicates that there is at least some caution about consumers’ ability to meet their financial obligations, particularly auto loans, which, like the ‘reported the Federal Reserve last month, increased by $33 billion. in the last quarter and where delinquency rates are increasing.

CEO Nash noted on the call that demand eased markedly at the end of the summer, where August saw double-digit earnings declines as “consumer confidence, certainly in the quarter, is at its recent all-time low, I mean even below the peak of the pandemic.

For paycheck-to-paycheck consumers, the choices are tough: bill sorting is becoming a reality, and as we’ve noted in previous research, consumers are opting out of all but the most essential expenses. . A growing percentage of people earning more than $100,000 a year are living paycheck to paycheck. The used car market is just one of many segments that has a bumpy road ahead.

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