Carmax: Auto sales slowing due to inflation and rising interest rates


Yep, I have a friend just down the block from this coffee shop who is a finance guy with a local Honda dealer. The most dishonest dealership. He promoted me the other day. It was an accident he called me sir. Told me the good times for him were over. The moments where he said we have no cars on the lot it will take a few weeks vanished. I am now “sir”.


There used to be a Carmax (KMX) board but it would become one of the ‘Stocks A to Z’ category - but I don’t know how to create a tag to access it.

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That is “All tags” mid way at the bottom of the left hand column navigation.

KMX CarMax is not one of the tags.

All the inactive boards were closed, mostly last spring - Carmax was one of them. We can add a tag for it if you really think it will have activity. I tend to think it won’t though.

Upon researching my old favorites, I see that it was a premium board.
Last activity was in August this year (but yes not a very active board - probably no longer a service recommendation for whatever service it was originally).
Given its recent 20% drop on Wed, I thought there might be activity there but there is no tag available for the premium Talking Stocks category.

Here you go -

It is pretty quiet, I posted the earnings release yesterday (and the subsequent share price ‘crash’ ) but not a lot of conversation.

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I notice Carmax also got some attention on the Falling Knives board.

But to me its an economic indicator.

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Is there some appropriate place to discuss stocks that do not have a tag? Maybe some catch-all place?

My thought is that it’s tough to see how much interest a particular stock might have if there is no place to discuss that stock.


That’s a good question and point Peter…let me think about it. Maybe a “companies with no tag” tag that folks could use and if enough interest is shown in a specific company, we could create a tag and carve those posts out into that.

Any ideas?

Yeah, and it’s down over 40% since the start of that thread.
I put it in the too hard pile.

The hard part of valuing Carmax is Carmax Auto Finance (CAF) which finances about 42.5% of vehicle units sold. Currently the delinquency rate on CAF loans is rising (not surprisingly) to just under 5% of loans outstanding. When a customer defaults on a car, KMS reposes it and typically recovers about 70% of the outstanding debt. It helps being a used car sales company when dispensing with repossessed property. It’s actually not the default rate that is the problem, it’s the loan financing. CAF finances loans to their customers at fixed rates but borrows at variable rates. In their 10K they stated that they would see a $0.14 reduction in FY22 earnings for every 100 basis point increase in rates. We’ve seen a 225 bp increase so far this year. They do hedge their loans, and hopefully are addressing this imbalance through hedging strategies, but the damage is already done for their outstanding book. The one thing to consider is that this is a temporary and fixable problem in that their book is turning over regularly and the current problems won’t last longer than the duration of their average loan. Things could be bumpy for the next few years in CAF, but it should not pose an existential threat to their core business of buying and selling cars.



I know next to nothing about Carmax, but this statement did get me thinking. What is the core business of the company? Is it really selling cars? Or is it like the GM of old - a finance company disguised as a car seller?


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What is the core business of the company? Is it really selling cars? Or is it like the GM of old - a finance company disguised as a car seller?


CAF is less than 20% of gross profits for KMX. Over 80% of gross profits come from selling cars.