Is CarMax’s difficult Q2 a sign of a slowdown in the used car market?

CarMax Inc.’s weak second quarter financial results paint a bleak picture: high vehicle prices, economy-wide inflation and rising interest rates are causing consumers to put off car purchases. used cars and trucks. The challenges are forcing the used-car giant to cut costs to better match sales levels.

The retailer’s decline in volume and earnings reported last week fueled fears of a more protracted deterioration in demand in the used-car market. CarMax’s share price fell 25% on Thursday, September 29, the day it announced its earnings, and share prices of competitor Carvana Co. and other state-owned retailers also fell. This marks a significant reversal from just a year ago, when retailers reported sustained high demand and strong profits for used vehicles and benefited from strong stock prices.

CarMax sold 457,889 used vehicles in the six months ended August 31, down 8.9% from the year-ago period. Company executives said the pressure on vehicle affordability that showed up in early 2022 appeared to be building and continuing through the summer.

CarMax said its net profit fell 56% to $125.9 million.

Industry sales were impacted by “a shift in the prioritization of consumer spending from large purchases to small discretionary items,” CarMax CEO Bill Nash said after the company’s earnings release.

CarMax same-store vehicle sales fell 8.3% year-over-year during the summer months, falling to a low single-digit rate in June, but accelerating in July with steeper declines that underperformed expectations.

The drop in demand has occurred “almost solely because of affordability issues,” said Daniel Imbro, managing director of Stephens Inc. covering CarMax and other auto retailers.