What happened to CarMax?
In 2022, CarMax experienced a decline in auto sales due to the increase in inflation and ramping interest rates (Ballard, 2022). As a result, CarMax has experienced a considerable decrease in their stock price, revenue, and used car unit sales in the third quarter of the year, compared to the same period in the prior year. Total retail unit sales decreased by 20.8%, while total wholesale unit sales decreased by a staggering 36.7%, leading to a net revenue of $6.5 billion, down 23.7% from the same period in the previous year (Lowenstein, 2022). Again, the decline in revenue can be attributed to the rise in interest rates and inflation, making cars less affordable and negatively impacting CarMax.
Carmax has also been subject to ongoing pressure due to the advancement of technology and the increase in driving options. According to Markman (2022), investors have largely overlooked automotive industry issues, however this may be changing with potentially detrimental implications for reseller shares. Carmax’s third quarter report revealed that total gross profit was down 31.1%, with retail used vehicle gross profit decreasing 20.8%. These declines are being attributed to affordability challenges for consumers. In response, the company’s CEO, Bill Nash, has expressed that they are taking deliberate steps to reduce costs and improve customer experiences to navigate through this period.
Fast-forward to present day and the company has made vast improvements; in the past several weeks, Tesla’s inventory has dropped by 57% (Loveday, 2023) and CarMax has launched its pre-qualification capability for shoppers on its website and app (CarMax, 2023). This new online financing experience allows customers to shop for vehicles with personalized financing terms with no impact to their credit score (CarMax, 2023). It also empowers customers to adjust their down payment and filter vehicles that meet their budget (CarMax, 2023). Despite this progress, CarMax’s third quarter expectations were below expectation; their stock fell by 15.5%, per-share earnings dropped by 85%, revenue decreased by 24%, total retail used units sold decreased by 20.8%, and average selling prices for its used cars increased by 1.9% (Mozée, 2022). These results suggest that the inability to afford cars due to inflation is a major factor in the decline of CarMax’s success.
In response to the widespread inflationary pressures, climbing interest rates, and low consumer confidence impacting the used car industry, CarMax CEO Bill Nash commented that “we believe vehicle affordability challenges continued to impact our third quarter sales performance” (Mozée, 2022). To address this, the company has shifted some units from wholesale to retail to meet consumer demand for lower-priced vehicles. As a result, CarMax has seen an increase in the price for used cars, as well as a suspension of their share buybacks due to uncertain market conditions. To navigate these pressures, CarMax has shifted necessary steps to focus on “profitable market share gains that can be sustained for the long-term” (Mozée, 2022). On January 16, 2023, CarMax closed the day with a share price of 67.44, up 3.75% from the previous day close. CEO Bill Nash has diversified their business tactics to help with profitability during these tough economic times and is confident that they are positioned to properly manage through this transition and current fiscal cycle. Nash states that “In response to the ongoing pressures across the used car industry, we have taken deliberate steps to support our business for both the near-term and the long-term. We are managing our business prudently, and prioritizing initiatives that reduce costs, unlock operating efficiencies, profitably grow market share and create better experience es for our associates and customers (Nash, 2002). Despite lower revenue sales, CEO Bill Nash has diversified their business tactics to help with profitability during these tough economic times. The CEO believe they are positioned to properly manage through this transition and current fiscal cycle.”
In conclusion, to combat these issues, CarMax is focused on reducing costs, increasing their profitability, and creating a better experience for customers and associates. To move forward, the company must remain agile and adjust their strategies to the ever-changing automotive industry.
References
Ballard, J. (2022, September 29). Why CarMax Stock Was Down Big Today. Nasdaq.com. https://www.nasdaq.com/articles/why-carmax-stock-was-down-big-today
CarMax. (2022, December 22). Carmax Reports Third Quarter Fiscal 2023 Results. CarMax. Retrieved January 17, 2023, from https://investors.carmax.com/news-and-events/news/news-details/2022/Carmax-Reports-Third-Quarter-Fiscal-2023-Results/default.aspx
CarMax unveils online pre-qualification path to financing. (2023, January 17). Auto Remarketing. https://www.autoremarketing.com/autofinjournal/carmax-unveils-online-pre-qualification-path-financing
Loveday, S. (2023, January 17). Carmax Sold Over Half Its Tesla Inventory In 24 Hours. MSN. https://www.msn.com/en-xl/news/other/carmax-sold-over-half-its-tesla-inventory-in-24-hours/ar-AA16roPFLinks to an external site.
Lowenstein, D. (n.d.). Carmax reports third quarter fiscal 2023 results. Carmax. Retrieved January 18, 2023, from https://investors.carmax.com/news-and-events/news/news-details/2022/Carmax-Reports-Third-Quarter-Fiscal-2023-Results/default.aspx
Mozée, C. (2022, December 22). CarMax plunges 16% as ‘vehicle affordability challenges’ drive 3rd-quarter earnings and revenue miss. Business Insider. Retrieved January 17, 2023, from https://markets.businessinsider.com/news/stocks/carmax-stock-price-earnings-revenue-q3-used-cars-inflation-kmx-2022-12
Nash, B. (2022, December 22). Retrieved from: Carmax — Carmax Reports Third Quarter Fiscal 2023 Results Links to an external site..
Tanuja, A ( 2022) “Strategic Planning: Meaning, Importance, and Limitation” Retrieved from: Strategic Planning: Meaning, Importance and Limitation (businessmanagementideas.com)
About the Author
Ron McFarland, Ph.D., CISSP is a Senior Cybersecurity Consultant at CMTC (California Manufacturing Technology Consulting) in Torrance, CA. He received his doctorate from NSU’s School of Engineering and Computer Science, an MSc in Computer Science from Arizona State University, and a Post-Doc graduate research program in Cyber Security Technologies from the University of Maryland. He taught Cisco CCNA (Cisco Certified Network Associate), CCNP (Cisco Certified Network Professional), CCDA (Design), CCNA-Security, and other Cisco courses. He was honored with the Cisco Academy Instructor (CAI) Excellence Award in 2010, 2011, and 2012 for excellence in teaching. He also holds multiple security certifications, including the prestigious Certified Information Systems Security Professional (CISSP) certification and several Cisco certifications.
CONTACT Dr. Ron McFarland, Ph.D., MSc, CDNA, CISSP
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