An 86% drop in profits and 22% slump in used car sales saw CarMax stock slump sharply in early trading.
This, as the nation’s largest retailer of used cars, with a network of 230 stores, posted its Q3 earnings results Thursday (Dec. 22) in the latest insight into consumers changed attitude toward buying and financing big-ticket items.
“We are taking steps to support our business by prioritizing projects that unlock operating efficiencies and create better experiences for our associates and customers,” CarMax President and CEO Bill Nash said on a call with analysts and investors. “That starts with making our omnichannel experience faster, simpler and more seamless,” he added, including enhancing online features that help customers feel more confident in completing key steps on their own.
By focusing on its self-progression digital selling capabilities, which include simplifying “Express Pickup” and enabling pre-approved car buyers to complete transactions at a CarMax dealership in as little as 30 minutes.
While Nash said this digital step-by-step digital financing, trade-in and shopping journey is a win-win opportunity.
“Our research shows that customers love this experience when utilized and it will enable us to lower our costs over time,” he said, noting that online digital financing tools will be rolled out to more physical locations, along with enhancements like self-check-in for appraisal customers and other self-progression tools.
In terms of online performance, Nash said approximately 12% of retail unit sales happened online, up from 9% in the comparable quarter last year, with roughly 52% of retail unit sales in the latest quarter categorized as omnichannel, down from 57% in the prior year’s quarter.
Pricey Used Cars Losing Value
CFO Enrique Mayor-Mora said year-over-year revenue decreases “were driven by lower volume across used and wholesale and lower wholesale margin per unit,” adding that “we continue to face depreciation and have been adjusting accordingly to better position ourselves to manage through the current environment.”
CarMax purchased roughly 238,000 vehicles from consumers and dealers in Q3, 40% below Q3 FY2022, with Nash saying, “our volume was impacted by steep depreciation and our deliberate decision to slow buys and reaction to the depreciation.”
He added that CarMax purchased approximately 224,000 cars from consumers in the quarter “with about half of those buys coming through our online instant appraisal experience. We also sourced about 14,000 vehicles through Max Offer, our digital appraisal product for dealers,” a 16% increase from Q3 fiscal 2022.
Jon Daniels, senior vice president of CarMax Auto Finance (CAF) Operations noted its credit platform “provided approvals to over 95% of the consumers who applied for credit during their shopping journey,” originating $2.1 billion in consumer financing in the quarter.
Daniels said, “our lenders continued to make their own independent lending decisions in this challenging environment, and we remain pleased with the competitive offers they are collectively able to provide to our customers.”
Daniels also noted that in Q3 CarMax completed “nationwide rollout of finance-based shopping, our multilinear pre-qualification product and we continue to see a high level of engagement with this experience.”
The online prequalification product is designed for customers “to digitally receive quick credit decisions across our entire inventory via a simple online application with no impact to credit scores. This also allows consumers to quickly and easily secure financing at any point in their shopping journey,” he said.