No. of Recommendations: 2
When their CEO says vehicle affordability is their biggest headwind I believe him. My employer is a manufacturer of things and we finance them too through our captive. If you were a customer who purchased a new product from us in 2019 and you came in to purchase the same thing today, your payment would be at least 50% higher for the same item due to price increases and interest rate hikes.
If you look back at the KMX Feb 2020 report their average vehicle selling price was $20,380 and their average CAF contract rate was 7.9%. Fast forward to the latest quarter and see $26,526 and 11.4%. Translate that into everyone’s favorite 7yr note term now (insanity) and you have payments of about $285 and $420 respectively. That’s a 47% increase before taxes and insurance increases. A tough pill to swallow for your typical American family.
They could be doing a lot of dumb things right now like chasing high priced inventory and taking lower margins to keep sales volumes up and sales people happily employed. But they don’t seem to be doing that. They seem to be content to hunker down and wait for the market to heal. If the used car markets were in a crisis because of sticker price plus higher interest rates, then I'm all in favour of a 'hunker down' approach and I will be patient.
But in the case of the used car market, for someone with constrained finances, I don't see a lot of alternatives to buying a car as cheaply as you can, meaning you buy a used car, not a new one. And when I look at used car sales month to month, like here for example:
https://www.coxautoinc.com/market-insights/used-re..., showing sales down a bit in December and January, and up in February, total up about 3% for the full 3 moths of the KMX Q1 report. That does jibe with their mention that the end of the quarter was stronger, so let's hope things keep going that way, but it doesn't really explain how KMX retail sales were down 3.8% in the same time period
In addition, although prices are up since 2020, KMX itself reports that average retail prices were down in Q1 2025 compared to the year prior, dropping from $27,258 to $26,256; wholesale prices were down even more, from $9,024 to $8,094.
And you would expect that high prices and high interest rates would cut retail sales of new vehicles even more, but that doesn't seem to have happened at all. In this report:
https://www.marklines.com/en/statistics/flash_sale..., I see used car sales up about 5-10%, year over year, for all 3 months (Dec 2023, Jan 2024 and Feb 2024).
I'm not very familiar with Auto Nation, as a comparator, but I notice their sales in Q1, for the same 3 months, are up about 1.5%.
I notice that in previous years, they boasted about market share, getting as high as 4.0%, and had a target of 5% by the end of 2025. No mention of market share in their press release, and I'm guessing they may not mention this nasty subject when the 10-Q eventually comes out.
Am I being too hard on them?
DTB
