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Automotive news reports that used-car giant, CarMax reported record earnings for its first quarter in 2019. While this is great news for CarMax, can we extrapolate more information from this about the market as a whole? I would say yes. CarMax is the largest single chain of dealerships in the country and therefore can be an indication of larger market trends.
So let’s get into the numbers…CarMax saw a 12% increase in net income to $266.7 million in the first quarter. Just as important as the revenue number is the fact that sales also saw a 13% spike. Simply put, this means CarMax saw an increase in volume of sales which led to more profits. This is important because it tells us that their increased revenues didn’t just come from improved margins on their sales or cost savings somewhere else; it is very much collated to an increase in the number of vehicles moved through the dealership.
The increase in volume of sales stands out to me as an interesting figure. For one thing, I am not surprised to see the spring quarter have better sales than the last quarter of 2018 just due to seasonal buying patterns. However, a 13% increase in sales is much more than just seasonality and is a clear indicator that the used car market has accelerated in the US…which leads to the next obvious question. WHY?
This question is much harder to answer so I turn to you all as well. Please drop a comment down below with your thoughts and your experience in the car market right now. Are you looking? At new or used? Why?
My analysis on the issue revealed a couple of factors:
1. Interest rates are very low right now which means financing a car looks very, very attractive for a lot of people. These rates may be encouraging a lot of people to want to lock them in a make a commitment to a new (used) car.
2. The threat and drama concerning tariffs with China and Mexico are creating uncertainty in the auto industry. The best way to avoid this uncertainty and possibly inflating costs is to buy used.
3. Finally, I feel that new cars, especially larger ones, are getting over priced. Manufacturers are taking advantage of consumers desire for larger vehicles and really pushing a lot of bigger CUVs and SUVs to the market. These vehicles not only cost more, but also have larger margins for the manufacturers. However these increasing starting prices for new cars is also pushing some consumers to the used market.