No. of Recommendations: 2
Rates need to come down for the lower tier buyer I think before it can be affordable for them. During the call they mentioned the less than $3000/mo income household is off more than 50% for them. .... I can't fathom how a family can live on that level of income today.
Yeah, ain't it the truth. How can anyone afford to have a car at all, with that level of income?
On the other hand, for many people, having a job means you have to have a car, and a used car is probably the only car that comes close to being affordable. And it seems odd that Carmax has trouble finding enough cars, but their average price is dropping. What happened to supply and demand? If used cars are tight, shouldn't we expect Carmax to be getting better prices? I don't think they have a 'Costco-like' dedication to fixed margins; in the earnings call, they said, for instance, "As always, we will continue to test price elasticity and monitor the competitive landscape."...
On another note, I noticed from the earnings call that they are now up from 11% to 14% of their sales taking place online, which would mean about 28,000 units sold online, now more than a third of Carvana's online volume, 76,530 in Q2, although it has been higher.) This has to be a good trend for Carmax, in terms of margins. Their average margin on their 200,825 retail cars sold in Q2 was steady, with gross profit per retail unit at $2,251. Considering the much higher margins at online rival Carvana (averaging over $4000, for the last 4 quarters), I would be curious to know how this breaks down between the 14% online and the 86% offline.
And I wonder why Carvana gets margins that are so much higher. They say that Q2 they had "Total gross profit per unit ('GPU') was $6,520, an increase of $3,152"), on 76,530 units sold in their Q2. Of course the 2 companies may calculate this number differently, but I presume it means the price the average difference between their acquisition price and their sales price, before subtracting all their overhead. And of course, with Carmax's size and cost controls, this means that Carmax still ekes out a profit ($696.8 in gross profit becomes $118.6m in net earnings at Carmax; at Carvana it is $396m in gross profit which becomes a $105m loss, and that will just get worse, as their huge debt load matures and sees higher interest rates...)
Regards, DTB (long KMX, short CVNA)
