CarMax Results Show Car Affordability Still an Issue Amid Higher Rates

The used vehicle market might be seeing improvement, but affordability remains elusive.

CarMax posted first-quarter earnings results for fiscal year 2024 Friday (June 23) that showed a slowing sales decline. Retail prices are down from a year ago, but then again, we’re coming down from some lofty levels.

The company logged a 17.4% decline in overall revenues to $7.7 billion. The average retail price of its vehicles sold slipped by 5.5%, to $27,258. The units sold declined by 11% in the quarter.

In a nod to the continued impact of price declines, management said on a call with analysts that more than 25% of listed vehicles have been priced below $20,000, compared with 20% a year ago. Net loans originated in the quarter were $2.3 billion, down from $2.4 billion in the previous year. As for the performance on those loans, the ending allowance for loan losses was $535.4 million versus $458.2 million a year ago.

Investors cheered the results, sending the stock up 9% in Friday’s intraday trading.

Offsetting Higher Funding Costs

As CarMax CEO Bill Nash said on the call, the company has been raising rates on its loans to help offset the higher cost of funds.

There’s evidence that consumers and dealers are interested in selling their vehicles. The company bought approximately 343,000 vehicles during the quarter, down 5% from last year, and an improvement from the 40% and 22% year-over-year declines during last year’s third and fourth quarters, per Nash’s commentary.

Roughly 20,000 of those vehicles came through dealers, management said on the call. And online penetration of the auto market continues, as 14% of the retail unit sales were online, up from 11% in the year-ago period. That activity has been enhanced by the CarMax Sky virtual assistant.

“Approximately 54% of retail unit sales were omni sales this quarter, which is consistent with the prior year,” Nash said.

During a question and answer session, Nash noted that “the overall used market obviously is still depressed … there’s still an affordability issue out there.” He observed that when it comes to affordability, 85% of that concept is driven by vehicle price, with the remainder driven by interest rates.

CarMax’s earnings results were preceded by reports over the past several weeks that show a re-calibration by consumers when it comes to buying cars — right into the spring and summer months.

Used car prices dropped in April, marking the first month-over-month decline in 2023. And as far back as January, in the “New Reality Check: The Paycheck-to-Paycheck Report: The Economic Outlook and Sentiment Edition,” a PYMNTS and LendingClub collaboration, less than a quarter of consumers who did not live paycheck to paycheck said they were likely to buy a vehicle this year, outpaced by the 34% who do live paycheck to paycheck, with issues paying the bills.