Affordability issues with used cars have been weighing on consumers already beaten down by inflation and high borrowing costs.
CarMax highlighted the issue on Thursday, saying it “continued to impact our second-quarter unit sales performance as headwinds remained due to widespread inflationary pressures, higher interest rates, tightened lending standards and prolonged low consumer confidence.”
The used car dealer said that in the quarter its total retail used vehicle unit sales saw a drop of 7.4% year over year, hitting 200,825.
Meanwhile, total retail used vehicle revenues fell 11% year over year. That, according to CarMax, stemmed from fewer retail used units getting sold and the average retail selling price falling. For the latter, it experienced a roughly 4% decrease.
For comparable store used unit sales, CarMax posted a 9% decrease.
CarMax has, however, “continued to achieve sequential quarterly improvement” on those metrics in the second quarter, according to CEO Bill Nash.
The used car seller believes the “deliberate steps we are taking to control what we can are supporting our business now while also positioning us well for the future,” Nash also told analysts and investors.
In mid-September, the U.S. Bureau of Labor Statistics reported that the consumer price index showed the price of used cars and trucks in August dropped 1.2% on a monthly basis. They were roughly 6.6% lower last month than they were in August 2022.
Used cars carried list prices of $26,651 on average in August, according to Kelley Blue Book.
Nash also fielded questions about the trade-in cycles that the used car dealer has seen, noting that some customers were “staying on the sidelines” due to affordability. Others were “going down to a different level of car,” according to the CEO.
“I would say the trade-in cycle is a little longer,” he said. “We absolutely see traffic flow coming in at the top of the funnel where there’s interest and again continue to fall off at the conversion point when people actually start to see their monthly payments, and this is especially true in the lower credit customers.”
In the second quarter, CarMax brought in $7.07 billion worth of net revenues, marking a drop of 13.1% year over year. Its net earnings narrowed from $125.9 million in the same period last year to $118.63 million.