Why CarMax Is Having A Rough Quarter

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Everyone wants a car! Cars are still expensive! Shouldn’t a company like CarMax suddenly be doing better? Nope! A massive, national used car retailer like CarMax is a reflection of the larger market and where we are, so let’s dive into that a little bit this Friday while we wait for the pivotal baseball games to start.

I probably should have been an economist, because this stuff gets me really excited. I don’t even need coffee. Just give me CarMax’s second-quarter filings[Ed Note: Matt, you might want to get that checked out by a medical professional. -DT]. 

Oh, yeah, The Morning Dump (Suck it PG!). It’s more than one story. Let’s also talk about Tesla, because Tesla is in the news for very bad labor reasons. And then maybe I’ll touch on the UAW, as we head for more strikes. Then, what the hell, let’s talk about Britain.

The CarMax Squeeze Is Bad/Good News

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Photo: Carmax

Here’s the topline from CarMax: It’s not terrible, but it’s not great, which is reflected in yesterday’s big drop in stock price (the biggest so far this year).

Net revenues were down $7.1 billion, or about 13.1% compared with the same quarter a year ago. Retail sales were down 7.4% and net earnings were also down. What’s going on?

From Bloomberg:

“CarMax continues to face significant affordability issues, given the still 35%+ increase in average vehicle prices and today’s higher interest rate environment, likely driving up monthly payments 40%-50% above pre-pandemic levels,” Truist Financial Corp. analyst Scot Ciccarelli said in a note to clients.

On the earnings call, Chief Executive Officer Bill Nash said that some customers “are going down to a different level of car, just to make sure that they can afford the monthly payments.”

Here’s how CarMax’s CEO Bill Nash describes it:

“We continue to drive sequential improvements in our business despite persistent widespread pressures across the used car industry. Through deliberate steps we are taking to control what we can, we delivered strong retail and wholesale gross profit per unit, reduced SG&A, and stabilized CAF’s net interest margin.”

I like the honesty of “control what we can.” The bit about net interest margin is interesting. Just like airlines are basically credit card point operations that happen to own planes, at some level these big new/used car operations are just big lenders with retail storefronts. The net interest margin is basically the difference between what they get in interest from their buyers and the cost of the money they borrow. Interest rates are way up for consumers, but also way up for big institutional borrowers.

How does this affect you, hopeful car buyer? If you’re someone with a little money, the increase in new car volume (pending the strike) is a pretty good sign. If you can afford a big down payment and can swallow a high car payment, you can get a vehicle that’s likely a little net cheaper than it would have been the last couple of terrible years, especially if you can be flexible (go buy a Grand Cherokee L!). If you can’t afford a huge down payment but have decent credit, the spread is still probably ok for you and you may be able to get a decent monthly payment if you’re willing to swallow a longer term.

But if you need a car and don’t have that much money? Learn to code… err, learn to wrench. Used cars are still hard to come by and, even though depreciation has accelerated, prices are still generally up over historical norms, and borrowing money is really hard. It sucks.

CarMax will be fine and, in two years or so, the market will probably get enough cars into the system so affordability improves. It’s still better than it was, but it’s not better for everyone.

Tesla Sued By Government Agency Over Alleged Racism Directed At Black Employees

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The original Model S. Photo: Tesla

It’s the duty of good people and good employers to not foster an environment where racism is accepted and, when it does show up, to address it quickly and thoughtfully. Apparently The U.S. Equal Employment Opportunity Commission (EEOC) doesn’t think Tesla is fulfilling that duty, as the EEOC just sued Tesla in a lawsuit that claims that for eight years Tesla has allowed racism to fester at its Fremont plant and did nothing about it. Here are some details from Reuters yesterday:

The U.S. Equal Employment Opportunity Commission (EEOC) said in the lawsuit filed in federal court in California that from 2015 to the present, Black workers at the Tesla plant have routinely been subjected to racist slurs and graffiti, including swastikas and nooses.

Tesla has failed to investigate complaints of racist conduct and has fired or otherwise retaliated against workers who reported harassment, the EEOC said in the lawsuit.

The lawsuit adds federal charges to discrimination claims by the state of California and lawsuits by Tesla employees.

This is the same company that reportedly created a secret team to suppress customer complaints over range issues, plus there’s Tesla/X CEO Elon Musk’s ongoing beef with the ADL, and there have been a number of other labor issues reported over the years. So none of this is a great look.

Tesla has not responded to Reuters and I’m not even sure who to talk to there anymore, as Tesla disbanded its media team a few years ago.

A Tale Of Two Strikes

Someone reportedly hit striking UAW workers outside of a parts depot in Flint that GM operates and UAW President Shawn Fain is not happy about it. From Automotive News:

In a video posted Thursday morning, Fain recounted three reports of violence and intimidation directed at striking union workers in recent days, including a hit-and-run outside a GM parts depot in Flint, Mich., that injured five people.

“These attacks on our members exercising their constitutional rights to strike and picket will not be tolerated,” Fain said. “Shame on these companies for hiring violent scabs to try to break our strike.”

[…]

Stellantis responded by saying it has not brought in any outside replacement workers and accused some UAW members of disorderly conduct. The company called on Fain to stop making “misleading and inflammatory statements” that will escalate the situation.

Ish is getting real. Let’s see how it’s going on in Dearborn with this French poodle soft take from the Detroit Free Press:

“You know, I’m only the fourth member of my family to be in my position at the company in over 120 years,” Ford said. “And I’ve always taken the long view. I’m trying to build a great company for my children and my grandchildren. But it’s not just my children and grandchildren. It’s all of yours as well. We have so many multigenerational families here at Ford who depend on us to do the right thing for the future, and we will.”

He continued: “We’ll get through this like we have every other difficult time that we’ve had in 120 years. And we’ll do it by focusing on the best interests of all our employees.”

Yep, 120 years of uninterrupted peace and love between Ford and its workers. Here’s some more:

“We’ll get through this. And no, I don’t think it’ll hurt our relationship with our employees in the long run. In fact, maybe it’ll bring us all together when we come out on the other side. And that’s what I’m hopeful for,” Ford said. “We’re different than the other companies. Our employees love Ford Motor Company. They love what we stand for. And they’re proud to work for Ford. And that’s the way I feel.”

Ford CEO Jim Farley, the grandson of a Ford autoworker, feels the same way, Ford said.

“And that’s the way our employees in our plant feel,” he said. “I’m not sure that’s always true at other companies.”

Jim Farley with the shaaaaaade this morning.

We’ll see how it all ends but, I think Ford has played its hand the best so far. Do I suspect the company is super jazzed about Fain and this suddenly ascendant and militant union? Absolutely not. Is the company smart to try and play peacemaker and wear a big smile? Absolutely. Just from an optics standpoint, Ford looks extremely reasonable here, GM looks confused, and Stellantis looks downright hostile.

Ford, more than any other automaker in this strike, seems like it knows how to read the room.

WTF Is Going On In Britain?

Sunak

Culture wars in the UK are so weird to me. First, PM Rishi Sunak decided to slow roll their gas car ban, and now he’s fighting against the war on motorists in the UK?

Here’s a quick update from The Guardian, which has a general left-lean:

The “plan for motorists” is expected to include moves to limit English councils’ powers to place 20mph speed limits on main roads, and to restrict the number of hours a day that car traffic is banned from bus lanes.

It is also understood to include curbs on local authorities’ ability to impose fines – and thus raise revenue – from traffic infractions caught by automatic number plate recognition cameras, and on the use of such cameras in box junctions.

Sunak is also expected to cite concerns about so-called 15-minute cities, an urban planning concept based around having shops and workplaces near homes, which some protesters claim is a UN-led conspiracy to limit people’s ability to travel.

As someone who likes to drive, you’d think that this is good news to me, but all politics is local and, to some degree, this goes back to an election in Uxbridge, England, where the liberal Labour Party was expected to pick up all three seats, but only got two because of motorist opposition to certain restrictions.

I’ve deputized our own Adrian Clarke to give us his usual sober, uncritical, and unbiased perspective:

Cheap attempt to grab votes from ‘common sense’ voters ie lunatics
The whole ULEZ expansion has been an absolute clusterfuck and he’s attempting to capitalise on some of that unrest, which although the mayor is Labour the original ULEZ was introduced when Boris Johnson was mayor

The thing about Uxbridge is Labour should have won that seat (district) but didn’t because they didn’t make much of the fact the original ULEZ was Johnson’s plan, and the expansion specifically tied to Transport for London funding, which gets its money from central government.

And the conservative central government has been defunding TFL for decades. So in a way, the mayor was stuck in between a rock and a hard place. But the Uxbridge thing is that Heathrow now falls inside the ULEZ, so ANYONE driving there now has to pay the charge, which is ridiculous

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100 thoughts on “Why CarMax Is Having A Rough Quarter

  1. If you think a flood is coming, do you park your project car on the high ground because you know it’ll be so difficult to replace or do you park your reliable daily driver, knowing how expensive getting a car is right now?”

    Neither. Park both on inflatable rafts.

  2. The big question?
    There’s always the two waterproof car covers and a few rolls of duct tape per vehicle solution.

    Step 1. Drive or move vehicle onto car cover number one. Cinch it tight from the bottom up.

    Step 2. Put on car cover number two and cinch it tight from the top down.

    Step 3. Use all the duct tape to seal off the seam where the two covers overlap.

    Step 4. Watch your protective creation balloon up around your vehicle as the water rises and hope it doesn’t burst or float away.

    Step 5. Watch it float away and then burst.

    Step 6. Crane your neck in a way that points your face toward the sky and scream obscenities at the clouds.

    It’s a fool-proven plan.
    Not that I have any real life experience with it…

    1. You had me until step four which should read…

      Step 4. Apply proper lashing to sturdy anchors (trees come to mind) to keep vehicle in place and air pockets under the car covers from expanding to the point that the material balloons, becoming buoyant, frangible and easily torn.
      (Maybe a few small vents cut up top for air to escape?)

      That could eliminate the need for steps five and six.
      Just a thought…

  3. I assume you’re talking about the big flooding in the NYC area the other day? Hopefully, both of your rides escaped unscathed Matt. 🙂 But, to answer your question, you decide which car you really don’t want to smell moldy for the remainder of your ownership, and it’s that one you put on higher ground.

    Don’t ask me how I know. 😉

  4. You know if Fain hadn’t come out screaming like Stalin for the blood and lives for the proletariat car manufacturers. Stating he was going to rip their heads off and drive them to the poor house, I would be more likely to believe his striking members were being treated poorly. But as a student of history union goons attacks scabs damage their property keep them from peacefully entering plants, a legal requirement, but no he employs goons just like the Ford family did.

  5. Ahhh, now this is the kind of steaming pile of cleansing Morning Dump we need here at the Autopian! Nice job Matt. Re: the daily vs project car question, it would depend on which one I had the best insurance coverage on. Or rather, the one I could get the most out of as a flood-totaled vehicle. I’d try to protect both, but put the one with the best coverage in the more vulnerable position. I suspect that would be the daily. I mean, the project car is already a project, right? So if it gets flood damaged, it’s just a bit more of a project (obviously depends on how far along it is now). But if your daily gets flood-totaled and you can take the settlement and get something else reasonable, you’re OK. TLDR: it depends.

  6. They question on which car to park on high ground reminds me of my buddy’s used car dealership situated in a flood plain. He used to have to move all of his cars (typically 20+ inventory) to his house when it would flood 1-2 times/year. He eventually just raised his lot up with a wall of this giant concrete legos and dirt/rock. I remember several of us scrambling to get a bunch of shitboxes to higher ground – very stressful.

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