CarMax reported, stocks plunged further. Shares of online used car startups Vroom, Carvana and Shift have already collapsed

CarMax encountered resistance to ridiculous prices. The used car startups are facing an existential crisis. Vroom shares fell 97 percent.

By Wolf Richter for WOLF STREET.

When it comes to listed used car dealers, CarMax is the adult in the room. Online-only used vehicles IPOs and SPACs Carvana, Vroom and Shift Technologies lose money in the hand and may never make money selling used cars because they were not designed to be profitable. Their stocks have totally collapsed in a spectacular demonstration of how Wall Street systematically cleans out in stock jockeys that ended up doing this, directly or indirectly.

But CarMax makes money. And yet, its earnings report today caused its already beaten stocks to dive nearly 10% to $ 93.33, having only been in 2019. They have fallen 40% from November’s high. The earnings report pointed to the problem that the industry itself created, while customers, confused by an inflationary mindset, agreed with it: Ridiculous prices. But enough customers are suddenly resisting. Before we get to CarMax, let’s take a look at the three used car dealers whose shares have totally collapsed.

Pious [VRM] began trading after its hugely hyped IPO in June 2020. Its stocks have now collapsed by 97% from their peak in September 2020 and closed today at $ 2.08, another record low (data via YCharts):

Change technologies [SFT] was announced via merger with a SPAC in 2020. The deal was announced in June 2020 and completed in October of the same year. Its shares have collapsed by 87% from their highs on June 29, 2020 to $ 1.89 at the close today (data via YCharts):

carvana [CVNA], the original dealer of used vehicles that are only online, was listed through listing in April 2017 at a listing price of $ 15 per share. shares. The hype was, despite the large and rising losses every single year for the past six years, such that it flung stocks higher and higher. In August 2021, stocks peaked at $ 376. And that was that. The great spirit of the hype suddenly disappeared. Today they closed at $ 100.78, a decrease of 73% from the highest level and back to the February 2020 levels:

These charts are accusations of the quarrels that played on Wall Street, complaining about the confused stock jockeys who bought these things on a wing and a prayer, believed in FOMO, believed in BTFD, believed in YOLO and believed in all the other memes, and believed on the thick hype because they figured this time it was different, or because they did not find it at all and just bought.

Men CarMax is an industry veteran. They know what they are doing. They have had huge profits for many years in the same industry, with Vroom, Carvana and Shift losing an arm and a leg.

CarMax said today in its earnings report that its retail sales of used vehicles, measured in the number of vehicles sold, fell by 5.2% compared to the previous year in the quarter ending February 28, and fell by 6.5% on a comparable store basis.

But its average retail price increased by 39.7% or by $ 8,300 per share. vehicle. In other words, their customers who bought paid on average $ 8,300 more for a vehicle than they did a year ago. It’s a gigantic price increase.

Thanks to these ridiculous price increases, the dollar revenue of its used cars increased by 32.6% and the total revenue by 48.8%.

But this can not be maintained. Enough consumers have had it. And their opposition is already making a dent – and that’s what CarMax alluded to today.

Across the industry, the total number of vehicles sold in March by dealers to retail customers fell 15% year-over-year, according to Cox Automotive estimates. This happened despite a large year-on-year increase in tax refunds in March.

But wait … this was in March, which is not even included in the CarMax earnings report today for the quarter ending February 28th. The decline in unit sales in the industry in March will be picked up by CarMax in its next earnings report.

“We believe a number of macro factors weighed on our fourth-quarter sales results, including declining consumer confidence, the Omicron-driven increase in COVID cases, affordability of cars and patchwork of stimulus benefits paid in the previous year’s period,” the company said. Note the term “cheap price.”

And the shares [KMX] were hammered further down and have fallen 40% from their peak in November 2021:

The term “cheap price” means that the industry went completely crazy about raising prices, and that consumers played along for a while and paid anything, confused as they had been by the inflationary mindset, and fluent with the various stimuli and cash-out refinements, leftover PPP loans, etc., all of which formed part of the trillions of dollars that had been set in motion by the government and the Fed.

Now there are not enough of this type of confused buyers left and there is price resistance and used car prices are falling. This was also captured by the CPI of used vehicles today, which fell 3.8% in March from February, after dropping 0.25% in the previous month. But the index still rose ridiculously 35% year-on-year:

There is a problem lurking in these cars now. As retail prices shift down because consumers have had it and they resist the ridiculous prices, the inventory purchased at these ridiculous prices will push the gross profit per capita. unit. CarMax is profitable and has been around the block and it will not lead to an existential crisis.

But that cannot be said of Vroom, Carvana and Shift, because they already lost an arm and a leg every year, even in the best of times, when the industry as a whole made the biggest profit ever. But now they are facing overpriced inventory, falling retail prices, rising operating costs and price resistance among potential customers. In addition, over time, the Fed will tighten financial conditions for the next few years, which will make it harder for money-losing companies to obtain financing.

Enjoy reading WOLF STREET and would you like to support it? I use ad blockers – I understand why – but do you want to support the site? You can donate. I really appreciate it. Click on the beer and ice tea mug to find out how:

Would you like to be notified by email when WOLF STREET publishes a new article? Sign up here.

Leave a Comment