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CarMax Fights Outside of It's Weight Class

CarMax Fights Outside of It’s Weight Class

By Daniel Ruiz Blinders Off, LLC

Carmax is undoubtedly the most efficient and dominant used car retailer in the US. They outsell the next 3 volume leaders combined.



However, something has changed. Please consider the following:

Will the inventory turn at CarMax outpace the depreciation?

This is a snapshot of CarMax’s inventory on March 22nd 2017:

As of May 20, 2017, their inventory has grown by over 18%.



Will CarMax report an 18% increase in volume for Q2? In 2016, there was a 4% volume increase from Q1 to Q2.  If sales velocity is lost, CarMax will be left holding excess inventory while new car manufacturers put massive pressure on used vehicle values.  

No longer just competing against other used car dealers.

The day supply problem created by new car manufacturers is now a used car retailer’s greatest threat.



To better understand the effect, we need to put ourselves in the shoes of the consumer.

Used Vehicle Values - The Foundation For The Automotive Industry

The Perfect Storm By Daniel Ruiz Blinders Off, LLC

Please start with the following video to better understand my analysis:
Auto Market Projections


The following topics all have their part in fueling the storm to come:


1) Trade Cycles and How They Affect New Vehicle Sales Velocity

Used car values determine in large the velocity of new car sales. Most new car transactions involve a trade. The level of equity in the trade oftentimes determines whether a new vehicle transaction will be successful or not. Inclining used car values lead to faster trade cycles while declining used car values lead to slower trade cycles. Dismal new car sales volume during our last recession created a shortage of used cars. This created a large supply and demand imbalance that made used car values soar from 2009 till 2014 as seen on this chart.


This time period was extremely favorable for new car sales because consumers found themselves in an equitable position on their vehicles in a very short period of time. To illu…