High prices and rising interest rates are putting used cars out of the reach of a growing number of car shoppers.
This is bad news for CarMax, the largest used car dealer in the country. CarMax reported Thursday that its profit fell 54% as the number of cars sold in the quarter fell 6.4% compared to a year ago.
The company blamedCar Affordability Challenges that stem from widespread inflationary pressures, as well as higher interest rates and lower consumer confidence.”
Although the higher prices pushed up the company’s overall revenue, the results fell far short of expectations from analysts surveyed by Refinitiv. This has set off alarm bells for investors. Carmax
(KMX) Shares fell more than 24% Thursday, and shares of other auto retailers were also hit. Stocks of a used competitor car Carvana
(a shroud) decreased about 23% and AutoNation
(AN), the nation’s largest new auto dealer, is down 10%. Shares of many automakers, including General Motors
(F)and Stellantis and Tesla
(TSLA)It was also less.
Car prices have risen steadily over the past two years, as shortages of spare parts, especially computer chips, have limited supply in the face of strong consumer demand. Those high prices were a major factor in general inflationary pressures Nearly 40% of American households buy a car each year.
Efforts to reduce prices prompted The Federal Reserve raises interest rates at a historic pace in recent months as the central bank tries to ease consumer demand and slow the economy.
Used car prices — although down 2% in August from the record level set in January — are still 48% higher than in August 2019, according to the Consumer Price Index, a key inflation measure. New Car Prices It hit a record in August, up 30% over the past three years.
CarMax reported an average vehicle selling price of $28,657 in the three months to August, up 9.6% from a year earlier, but down 1% from the previous quarter.
According to CarMax executives, it wasn’t just the cost of buying and financing the car that weighed in on sales. Overall pressures on family budgets from rising prices across the board have become a problem.
“grocery shop CarMax CEO William Nash said on a call with investors. “Consumer confidence, certainly during the quarter, which is the lowest level ever for recent history, I mean it’s below the peak of the epidemic. So I think consumers prioritize their spending a little differently.”
The company’s results were also hurt by the increase in reserves to cover potential loan losses in its financial arm. CarMax more than doubled the $35.5 million it held in reserve a year ago to $75.5 million at the end of last quarter.
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