4 Key Trends in Used Cars Learned From CarMax

Earns Carmax
M. Spencer Green/AP
CarMax (KMX) reported quarterly results last week. The market didn't like it. Shares of the leading used-car dealer fell by 4 percent on Friday, carrying over into another 4 percent loss on Monday. It wasn't a bad report -- Wall Street was just holding out for a better overall performance as sales and earnings fell short of expectations.

CarMax's report offers a great glimpse into trends of the resale market, which tops the 16 million or so new cars sold every year. Let's go over a few things that CarMax was taught us this time around.

CarMax's Model is Gaining Popularity

Used-car salesmen used to have a shady reputation, but today's youth will probably have to stream a copy of "Used Cars," a 1980 film with Kurt Russell, to get that feeling.

No longer do we automatically think of slick-talking salesmen trying to unload lemons. CarMax offers an experience that's a lot closer to new car showrooms with clean floors, massive selection and sales reps that don't necessarily have a hidden agenda because the cars are sold at haggle-free prices. What you see is what you will pay.

Potential car buyers seem to like it that way. CarMax claims that its market share has risen by 17 percent over the past year in terms of its core product of selling cars that are no more than 10 years old.

Folks Prefer Newer Used Cars

The economy's improving, but that doesn't mean that everyone can afford a new car. In fact, CarMax posted its best store-level comps growth in terms of the number of vehicles sold at its lots since 2002. It sold 12 percent more used cars at the individual store level last year than it did in 2012.

However, these folks still don't want to drive really old cars. CarMax revealed during its conference call that 70 percent of its sales are for vehicles that are 4 years old or newer.

It's Getting Hard for Drivers with Bad Credit to Get the Keys

One of the negative surprises in CarMax's report is that the number of car sales going through third-party subprime lenders -- after inching higher in each of the three previous quarters -- clocked in flat at 17 percent of its sales. An optimist would spin this as a positive, arguing that it means that used-car buyers grew more responsible during the holiday quarter ending in February.

However, since sales were soft, Reuters and others point to the lack of subprime lending as the culprit that resulted in CarMax's performance falling short of expectations. Buyers turn to subprime lenders and their higher rates when they get shot down everywhere else. But this time it seems as if they were getting shot down there, too.

CarMax is Going to Keep Growing

CarMax opened a record 13 new showrooms in fiscal 2014. It is looking to open 13 stores this new fiscal year, and it is targeting 10 to 15 new superstores in each of the next two years.

The outlook is rosier than the market's reaction to CarMax's performance. Used cars will continue to be popular. And with the average age of the car in this country clocking in at 11.4 years -- ancient by historical standards -- there is plenty of pent-up demand to either buy a new car or make better use of that money by investing in a lightly used secondhand vehicle.

Analysts see sales growing 12 percent at CarMax this new fiscal year as well as for fiscal 2016. CarMax's ability to gain share in a market that should continue to grow in most economic climates should bode well for the stock's chances to bounce back. It knows where it needs to go, now it just needs to make sure that its stock shifts out of reverse.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends CarMax and owns shares of CarMax. Try any of our newsletter services free for 30 days. ‚Äč

Increase your money and finance knowledge from home

Professional Vs Do it Yourself Investing

Should you get advice or DYI?

View Course »

Basics of Diversification

Learn one of the fundamental concepts of building a portfolio.

View Course »

Add a Comment

*0 / 3000 Character Maximum


Filter by:

Stay away from these carmax places ,its a walmart for cars all auction/rental cars that have been beat on!!! STAY AWAY!

April 15 2014 at 11:42 AM Report abuse rate up rate down Reply

teridavisnewman, I agree with everything you said about the Lincoln Town Car because I have had a few myself with similar experiences, however you really lost me with your reference to the "crappy Obama economy". Considering the horrible mess G DUBA Bush left him in, with the Teapublicans fighting him @every turn, I think he has done a great job with the economy!!!!

April 14 2014 at 10:57 PM Report abuse +1 rate up rate down Reply

I picked up a mint condition black 2004 Lincoln Town Car Ultimate trim (I can't get new ones since they stopped making them but I drive nothing else) with 31,000 miles two years ago. It's now got 108K miles with absolutely no problems. I've done nothing but oil changes using synthetic oil and the car still looks and drives out like a brand new car. I'm going to put tires on it soon but that's a maintenance item. It has every luxury feature Lincoln offers and gets a decent 26-28 mpg on the highway when fully loaded and being driven at high speeds. Obviously I drive a lot (I'm a road warrior) and I like to be comfortable. I paid 10K for a 56K (new MSRP) vehicle that has given me excellent service and value for my money and cut my payment from $600 a month (WITH 0% financing!!) for the brand new POS sports car (GM build--never again!!) to $263 a month with a 7% note since you cant get 0% financing with a used car and not one single repair bill whereas the Solstice started breaking regularly as soon as it was out of warranty. As much as I drive, I'll never buy brand new again because I take a huge beating in depreciation. When I drive this Lincoln to death and my mechanic says it's toast, I'll look for another older low-mileage cream puff throwaway. I have never gotten less than 350K miles from a properly maintained Lincoln TC and I used to own a limo company, so I've had a LOT of them. Another plus is that the 2003-2011 Lincoln TCs are all identical so it's identical to a brand new one. Don't buy new--buy 3-4 years old with 20-30K miles and get it for less than half price in virtually new condition with the balance of the factory warranty in most cases. Can't beat it and we all need help in this crappy Obama economy!

April 14 2014 at 5:40 AM Report abuse +1 rate up rate down Reply

I have never purchased a used car but did buy 3 new Honda Civics between 2004 and 2014. I kept the earlier ones for only about three years and 90,000 miles or so. However, knowing the Honda reputation for longevity, I have retained the two most recent, a 2007 sedan (131,000 miles) and a 2010 coupe (173,000 miles) to save money and to see what the ownership experience would be like with a high-mileage car.

So, instead of buying used, I have kept my own two old cars since I know their history and how they have been driven and maintained. This has enabled me to avoid the uncertainties inherent in the purchase of a used car and it has saved me a great deal of expense over the last ten years or so, although there have been some significant repair costs. Modern cars are much more durable than their earlier counterparts, and my experience with these two cars has been favorable. They are also very cheap to insure - I have found $25/month rates from Insurance Panda (4AutoInsuranceQuote is also cheap)... Another consideration is that, in recent years, low-mileage used cars have been relatively expensive compared to new cars. In terms of dollars per mile of transportation, older cars are probably a better value.

April 13 2014 at 7:55 PM Report abuse +2 rate up rate down Reply

From 2000 to 2013 I bought exactly 7 cars from Carmax, so is about less of every 2 years I come back I buy again...

I bouht in that time period 3 Toyota Camry's, BMW Z3, Chevy Impala, Honda Civic and Kia Optima...Every car in time I bouht is old about 2 to 2 and half year, every car has between 20.000-25.000 miles, every car in that time look like new, inside and outside, no damage of any kind...

And top of that every car in that time has very low price from that time price for new one exactly...

After all these years in my posesion and in good driving condition still 5 cars...
One Toyota Camry has been in accident (Not my fault) Insurance pay me off and for other one BMW Z3 after 5 years in my posesion I sold it for about little less of $10.000 ....

And that's all...no problems from Carmax car's,

April 12 2014 at 1:01 AM Report abuse rate up rate down Reply
1 reply to sdfdssg87's comment

Yeaaaaaaa ok you must work there !!!.............. such B.S

April 15 2014 at 11:43 AM Report abuse rate up rate down Reply

Rental car companies also sell used rental cars . Are they better deals since drivers never owned them but the rental companies themselves . They are fleet cars at end of their useful rental life usually two years olds. Are mileage higher than private owners because of daily rental usage? Are rental drivers more abusive than private owners? Are private owners better with maintenance than rental car companies? Who has the answers to my questions above?

April 11 2014 at 3:31 PM Report abuse +2 rate up rate down Reply
1 reply to Gumby's comment

I worked with a garage years back that handled enterprise rental cars. Horrible maintainance. Refused to fix anything including brakes. They would pad slap a car that was clearly grinding the rotor. One was so bad that the rotor broke apart. The management told us to let it go and that when the next renter came back complaining, they would blame them and charge them for the repair. They would go 15,000 miles in between oil changes to further cut cost and increase bonus's. Dodge Stratus's would come in with slipping transmission's, they would just send it back out looking for a less intelligent young kid to rent to. Then bill the person for repairs. Beware.

April 13 2014 at 6:36 PM Report abuse +2 rate up rate down Reply
1 reply to gildersleeve9's comment

That doesn't surprise me one bit. About what I figured on the oil changes. Also if an owner plans to trade off his car in two or three years, what incentive is there to take care of it? I'll buy new and keep it.

April 14 2014 at 9:36 PM Report abuse +1 rate up rate down

We've purchased 4 vehicles from Carmax and will continue to do so in the future. We don't finance we buy outright. Don't see the sense of paying all that interest. And I'd never buy a new car. If you buy a car that's a couple of years old and has less than 20,000 miles it's just about new. And it's a whole lot less than a new car.

April 11 2014 at 12:00 PM Report abuse +1 rate up rate down Reply

what they aren't saying is banks will only loan on cars 5 years old or less, it's not a trend it's a requirement to get a loan.

April 11 2014 at 11:31 AM Report abuse +2 rate up rate down Reply
Campbell's Home

I think there is also a large market for clean used cars in the $4,000 to $6,000 price range. For the first time car buyer that wants some decent transportation this is their range. Also most of the cars in this range now are not "clean" and do not have many miles left in them.

April 11 2014 at 11:27 AM Report abuse +1 rate up rate down Reply

A three or four year old car that ends up at Car Max could be suspicious. There are so many low mileage almost new cars that come off lease each year, and many new car dealers keep these for their own inventory, especially since the Great Recession (which isn't over yet), used cars are a big money maker for dealers. If a three or four year old car isn't kept by the dealer for it's own inventory, I would be wary when that car ends up at Car Max.

April 11 2014 at 10:55 AM Report abuse +4 rate up rate down Reply
1 reply to RMS's comment

Our family has purchased 4 vehicles from Carmax over the past 12 years, and they have all been great cars with low miles and not one has given us any trouble. They've all been less than 4 years old and have less than 20,000 miles. Great cars, practically new, at great prices.

April 11 2014 at 12:04 PM Report abuse +1 rate up rate down Reply