Subject: Re: KMX - CarMax missed earnings estimate.
Profits are primarily a factor of turnover, not price levels---the price of cars is not that big a factor in their business success.
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But volume will decrease as prices rise, right?

Sort of, but not nearly as directly as you might at first suppose.

Remember, these are not new cars, so the simple supply/demand curve logic of new cars doesn't directly apply. For every buyer of a used car, there has to have been a seller of a used car. The first may decrease in propensity to trade with a higher price, but the second might increase propensity to trade, and it's mainly the number of transactions that matters.

And even though the buyer is normally price sensitive and subject to the usual supply/demand curve, it's not always the case: if new car prices soar, this increases relative demand for used cars, making them a type of Giffen good. For example, if new car prices rise 25% (BMW tariffs), but used car prices rise only 10%, the demand for used cars can actually rise in the face of higher prices.

Occasionally chaos and turmoil during recessions can increase car trading volumes even as affordability falls--lots of repos, for example. The clearing price may fall, but the volume may hold up. That's not the general rule, I'm just pointing out that it's not all a simple linear relationship. Arguably something like the attractiveness of car leases 3-4 years previously may be a bigger predictor of used car volume than current used and new car prices.

Jim