CarMax Increases Loan Loss Provisions Amid ‘Uncertain Economic Outlook’

Used car retailer CarMax saw greater loan losses and economic uncertainty during the quarter ended May 31.

In response, the company’s CarMax Auto Finance (CAF) business boosted its provision for loan losses during the quarter to $101.7 million, up from $81.2 million in the same quarter a year earlier, according to a Friday (June 20) earnings release.

“CAF’s loan loss provision of $102 million was impacted by several notable items,” Jon Daniels, executive vice president of CarMax Auto Finance, said Friday during the company’s quarterly earnings call. “First, Q1 is a seasonally higher sales and lower credit quality period requiring a larger provision for newly originated volume. Second, loss performance within the quarter, particularly within 2022 and 2023 vintages, along with uncertain economic outlook necessitated additional loss reserves.”

Daniels added that the company’s 2024 vintages remain in line with its original loss expectation.

CarMax released this data while reporting first-quarter results that saw its retail used unit sales grow 9.0%, its comparable store used unit sales rise 8.1% and its wholesale unit sales increase 1.2%, according to the release.

The company also saw its gross profit per retail used unit increase by $60 to reach a record high of $2,407, per the release.

CarMax President and CEO Bill Nash said during the call that some of this growth was driven by consumers rushing to buy vehicles in March and April ahead of new U.S. tariffs, but that the business was growing well before that surge, thanks to things the company can control.

“I think that’s a reflection of a lot of the work that we’ve done internally, whether it’s the inventory management, it’s our pricing, it’s our savings, it’s the omnichannel experience and continuing to make that better,” Nash said.

CarMax has continued to gain efficiencies as it deploys artificial intelligence across its operations. Daniels said during the call that the company’s AI-powered virtual assistant, Skye, saw a 30% improvement in containment rate during the quarter.

The percentage of the company’s retail unit sales that were supported by its digital capabilities stood at 80% during the quarter, with omnichannel sales accounting for 66% and online sales accounting for 14%, according to the earnings release.

Those figures were each down one percentage point from the previous quarter, when omnichannel sales were gauged at 67% and online at 15%.

Asked about the decline by an analyst, Nash said during the call that the change may have been seasonal and added that the general trend is toward omnichannel sales.

“I think the more interesting and the more relevant point is that in the omni bucket, we continue to see more transactions, more pieces of these digital capabilities being used,” Nash said.

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