Is CarMax Inventory The Canary In The Coalmine Of The Slumping Auto Industry?

Authored by Dan Ruiz via Blinders Off blog,

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.

What would you prefer to buy… a used 2016 Malibu with 24k miles for $19,599 or a new 2017 Malibu for $18,242?

 

How about a Silverado?

 

Here’s the eye opener!

These are not unique examples of CarMax’s inventory. This is a representative sample of a significant portion of their current inventory.

 

15% of CarMax’s total used vehicle inventory is comprised of MY16 and MY17 vehicles.

If new 2016 leftover vehicles aren’t selling, what are the chances that CarMax sells their pre-owned alternatives?