The biggest second hand cars retailer in the U.S., CarMax Inc. stated on its latest report that it has lower-than-expected profits for the quarter because of the lesser number of units sold which hurt the company big time. This is mainly because of stricter lending terms that kept the company’s clients at bay according to CarMax.
CarMax is also selling new cars aside from the used ones and its combined sales dipped as much as 10% on today’s early trading.
Comparing the sales growth of used-car sales for CarMax stores went down to 0.2% in the quarter that ended in the 31st of August which was up at 15.9% of last year.
Scott Ciccarelli, an analyst of RBC, wrote that huge increase of subprime sales has been the main growth driver for CarMax over the last couple of years and with the slower growth than the usual from this customer base, there would likely be an adverse impact on the profits of the company
To make the impact of subprime sales on the company’s profit, CarMax reported that 13.8% of the cars that it was to sell in the quarter were funded by third-party loan providers that went a lot lower this year from the 18.5% last year. Again, this is because of the tighter credit terms, CarMax said.
Car sales to subprime customers, those buyers with not-so-good credit history had gone lower to about 5,200 cars which is a lot of profit that the company lost.
Tom Folliard, Chief Executive of CarMax confirmed that the customers visits at the company’s stores are heavy, but the number of people buying second hand cars is not increasing mainly because of offers by subprime lenders which are not very compelling to make them go for the purchase.
To add more injury to the low third quarter profit of the company, the second quarter of 2014 had one less Saturday than that of last year’s same quarter, which will have significant impact on the comparable unit sales growth by 1%.