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Used Car Retailers Enjoying Larger Profits Despite Lower Sales

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CarMax reported sales were down 11%, but revenue increased 21 percent.

The largest used automobile retailer in the United States, CarMax, announced on Friday that its total revenue increased by 21% from the same period last year.

CarMax sold 11% fewer used automobiles, but transaction prices were on average $6,311 higher per vehicle, up 28% from the previous year. The corporation made $2,339 per vehicle in revenue, an increase of $134 compared with the same time last year.

“While the used vehicle market environment was challenging in the first quarter, we continued to make progress on the key strategic priorities that enable CarMax to grow profitable market share, now and into the future,” said Bill Nash, CarMax president and chief executive officer.

How their competition fared

In contrast, Carvana sales rose 14% in the first quarter, compared to the same period a year ago. Revenue was $3.497 billion, up 56% year over year. The good results come despite the company’s poor performance in properly registering vehicles.

customer giving us money seller for sale or rent new car
The rising prices for used cars has lead to very healthy profits for dealers.

AutoNation’s also reported increased first quarter 2022 used vehicle retail sales, up 11 percent. The gains are partially driven by the company’s entry into the Charlotte, North Carolina and Charleston, South Carolina markets. The company plans to open 12 new stores during the next 12 months, with a target of more than 130 AutoNation USA stores nationwide by 2027.

Similarly, Asbury Automotive saw used vehicle volume increase 63% in the first quarter, while used vehicle retail revenue increased 100%; gross profit increased 102 percent.

Affordability becoming an issue

Despite CarMax’s strong sales results, it’s the second consecutive quarter with decreased unit sales year over year as rising borrowing costs and inflation are driving some consumers out of the market. Also, vehicles more than six years old accounted for about 35% of revenue in the most recent quarter, rising from one-fifth of sales. 

“Higher interest rates, coupled with high gasoline prices and high vehicle prices, is slowing sales in the used market. And, unlike last year, there are no stimulus checks to provide some help,” said Charles Chesbrough, senior economist at Cox Automotive.

Manheim indicates that dealers have a 45-day supply of used cars, and a 25-day wholesale supply.

Used car inventory is rising

Pandemic supply change disruptions have dampened the inventory of new cars, which is driving up prices for both new and used cars. However, the supply of secondhand cars is beginning to stabilize.

According to Cox Automotive, as of mid-June, the inventory of new cars is down 70% compared to the same time last year. But the inventory of used cars has rebounded, and is down only 11% over the same time period.

With second quarter results about to be announced by most of CarMax’s competitors, it remains to be seen how much the market is changing with the recent increases in interest rates.

Cox Automotive states that year to date, the total used market is currently on pace to finish the year down more than 12% from the 40.6 million recorded in 2021. But high prices should ensure continued healthy profits for dealers. 

In reaction, CarMax CEO Bill Nash said that even if the company reduces some expenses, it will not come from reductions in vehicle reconditioning costs. Also, after noticing the effects of inflation on its inventory in the first quarter, the company plans to make more reasonably priced cars and trucks available.

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