Home » Even CarMax’s CEO Thinks Used Car Prices Are Too High

Even CarMax’s CEO Thinks Used Car Prices Are Too High

Dump Carmax

CarMax provides a perspective on the used car market, Reuters provides an update on Tesla’s Chinese ambitions, NIO provides a prudent reevaluation of its 2022, and CES provides David a chance to go back to the Taco Bell Cantina on the Las Vegas Strip.

Welcome to The Morning Dump, bite-sized stories corralled into a single article for your morning perusal. If your morning coffee’s working a little too well, pull up a throne and have a gander at the best of the rest of yesterday.

CarMax CEO Fears Buyers Are Locked Out Of Used Cars Entirely: ‘You Have To Go Back To Affordability’

Screen Shot 2022 12 27 At 8.14.17 Am

We’ve written a lot about the changes in used car prices and the slow easing of the inventory crunch, but it’s still a challenging time for used car buyers. It’s also, increasingly, a difficult time for used car sellers. CarMax is, by volume, America’s largest used car dealer and they’ve seen their stock drop by over 50% this year.

Part of the challenge in the used car market was Carvana, which was likely driving up wholesale prices of used cars by buying from consumers at artificially high prices. With inventory super low due to a variety of factors (cars being destroyed in storms, production/supply chain issues reducing the number of cars being sold to rental fleets, et cetera), prices kept increasing. Add in that rising interest rates and it’s suddenly not a great time for anyone.

CarMax dropped its third-quarter earnings report right before Christmas, conveniently, and it showed lingering issues:

Combined retail and wholesale used vehicle unit sales were 298,807, a decrease of 28% from the prior year’s third quarter. Online retail sales accounted for 12% of retail unit sales, compared with 9% in the third quarter of last year. Revenue from online transactions, including retail and wholesale unit sales, was $1.8 billion, or approximately 28% of net revenues, a decline from 30% of net revenues in last year’s third quarter.

Total retail used vehicle unit sales declined 20.8% to 180,050 and comparable store used unit sales declined 22.4% from the prior year’s third quarter.

CEO Bill Nash had more to say on a conference call, as recorded by Automotive News:

“You have to go back to vehicle affordability,” CarMax CEO Bill Nash said in a Thursday conference call. “It’s just keeping a lot of people on the sidelines right now.”

It’s worth noting that CarMax made $31.9 billion in FY2022, helped by an increase in profits caused by limited demand. The concern about affordability doesn’t seem to stem from a desire to assist buyers in a tough market as much as a realization that their business is a never-ending balance of inputs and outputs.

Tesla Is Reducing Output From Its Shanghai Plant: Report

Tesla Shanghai

The exclusive of the morning belongs to the reporters at Reuters, who seem to be recovering from the holidays faster than I am. They’ve got access to internal documents that show Tesla will continue to run a lower production schedule at the company’s Shanghai plant:

Tesla (TSLA.O) plans to run a reduced production schedule at its Shanghai plant in January, extending the reduced output it began this month into next year, according to an internal schedule reviewed by Reuters.

Tesla will run production for 17 days in January between Jan. 3 to Jan. 19 and will stop electric vehicle output from Jan. 20 to Jan. 31 for an extended break for Chinese New Year, according to the plan seen by Reuters.

Why? Sinking demand and rising COVID certainly don’t help. This has been a problem for the entire Chinese auto industry. Rising competition from domestic producers like BYD ain’t helping, either.

Nio Also Feels The Pinch

Nio Es7

Tesla isn’t the only automaker sensing a little trouble in big China, with Chinese EV-maker NIO adjusting its fourth-quarter expectations. I like the way NIO puts it in their release: “NIO Inc. Prudently Adjusts Fourth Quarter 2022 Delivery Outlook.” I’m gonna steal that. “Matt Hardigree Prudently Adjusts Afternoon Leftover Ham Intake Outlook.”

Here’s the company’s take:

In December 2022, the Company has been facing challenges in deliveries and productions, together with certain supply chain constraints, caused by the outbreak of the Omicron coronavirus variant in major cities in China. While our teams have strived to maintain continuous operations on all fronts, we were not able to reach our full capacities, particularly when there have been disruptions on delivery and registration procedures involving users. The Company now expects to deliver 38,500 to 39,500 vehicles in the fourth quarter of 2022, adjusted from previously released outlook of 43,000 to 48,000 vehicles.

Aim for the moon and land on the top bunk, or whatever.

CES Is Gonna Be EVS Because Of All The EVs, Amirite?

Ram Ev

It sounds like David and PG are going to be at CES to see all the big reveals of, primarily (if not exclusively), electric cars and trucks. Also scooters! (Ed. note: They may have flying cars there, too. I’ll see if I can get David to pilot one until they send the Nevada Air National Guard after him. -PG)

The folks at Automotive News have a breakdown of the big movers and shakers:

BMW will showcase its Neue Klasse next-generation platform, which it expects to build vehicles upon starting in 2025. Stellantis will highlight its Ram EV pickup, scheduled to launch in 2024. Both BMW CEO Oliver Zipse and Stellantis CEO Carlos Tavares are set to deliver keynote remarks.

Honestly, the electric Ram 1500 alone is worth the price of admission.

The Flush

How long do you think it’ll take before used car prices come down to their historical averages?

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Photos: Google Finance, Carmax, Stellantis, Nio

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17 Responses

  1. The flush, I think we’re a couple years away still from another used car market dry up, if I’m remembering from the cash for clunkers aftershock correctly.

    I think the thought went that the used car market is about 5 years behind, supply chain issues started only 3 years ago, but there are no cheap cars now, so in a couple years things are really gonna pucker up as there were less new cars produced, and that will last at least the 3 years or more we’re seeing for automakers to really ramp up again, so well over 5 years.

  2. If your prices are higher than what your customers are willing to pay, you may have to lower them. That’s the kind of cutting financial insight that people like Mr. Nash get paid nearly $14,000,000 a year to provide.

    CarMax, call me. I’ll do the job for half the pay.

  3. If China’s market truly collapses, we may expect an invasion of Taiwan and takeovers of various bits of the South China Sea. Faltering economies tend to push badly led countries into military adventures.

    1. Without going into a lot of detail, China doesn’t have the invasion craft (yet) to mount a successful invasion. They can bomb it to the stone age, but that sort of defeats the purpose of taking it. Now, they are building those craft, and should have that and the rest of the Navy ready by 2030. Of course, that doesn’t mean they’ll take a reasoned approach and not try it sooner…

  4. I’m fearful that car prices will never go back to normal to be quite honest. The average price of a new vehicle in the US is nearly $50,000, the average payment on a new vehicle is around $700 a month, and the average payment on a used vehicle is over $500. All of this in a country where the median household income is around $70,000. I personally can’t even begin to imagine taking on a $700 car payment while making 70k. I’m pretty conservative financially speaking but to me that borders on reckless, and it’s absolutely not a smart decision no matter how you slice it.

    All of this can’t be pinned on a single factor either, it’s a cocktail of them. Manufacturers have no desire to make cheap cars, so almost all of them are moving away from them. Then of course we have a small supply and sky high demand. And we also have manufacturers that literally specialize in predatory lending…like Nissan and the American companies. If you go to Ford or Chevy’s website and spec out a build their default financing is 72 months, which is insane.

    More expensive new cars means more expensive used cars, and as regular people are priced out buying new slowly but surely the demand for used cars goes up, which combined with low inventory for the foreseeable future means high prices are here to stay. Unfortunately these are the economic consequences of living in a country where literally everything is designed to funnel wealth upward. Similar things are happening with housing as we speak.

    People of normal and even above average economic means are no longer going to be able to afford to own anything, and these manufacturers, developers, etc couldn’t care less because their pockets get stuffed by these consequences, which then go on to line the war chests of politicians on both sides of the aisle. I sure hope that this slow decent into forcing the middle and lower class to rent all of their necessities stops, but I’m not exactly optimistic because this is exactly what the American economy is designed to do. All of this will come crashing down eventually and it won’t be the billionaires who are left holding the bill….

    1. When it was a challenge to find a car that could go 5 years without major service, loans of no more than 3 to 5 years were reasonable and therefore common.

      These days, a seven year loan isn’t at all unreasonable for the value returned by buying new instead of used. Even an eight year loan would be a reasonable proposition for buying most domestic and Japanese vehicles.

      The problem rests solely with the size of the loan and the interest rates.

  5. Before Cash for Clunkers, your Basic Shitbox was between $150 & 500, and you’d put 150-300 and a weekend or two in working on it to get something that would start, track & brake straight, and didn’t have ankle ventilation. After CfC, it became more like 750-1000. I’m now looking for basic transportation for a buddy, and I haven’t seen anything even worth going to look at listed for under $1500. I theorize that many of the absolute shit-show cars were parked, then junked during Covid. I’m seeing a lot of formerly sort of high-end cars now being driven by the tweaker set: they’re missing 1/2 a bumper cover or the back window is tape & plastic.

    My personal opinion is that $1500 will be the new floor for legal, functioning transportation here in SW Va. I’m talking an old, but working car without ac: your basic poverty shitbox. And this won’t come down much anytime soon due to the pandemic, then supply-chain problems, then gas-crunch prompting back-yard pull-out & rehabs. As I’ve never paid more than $3k for a car, I have no informed opinion on what most people consider the used car market

  6. My thoughts for what they’re worth:
    Used car values getting back to normal will probably take longer than we think. Manufactures will be conservative about restarting production of cheaper cars until covid is well and truly gone

    1. Counterpoint…Used car prices plummet while dealers attempt to make up the negatives with fees and add-ons way heavier than they used to so they can balance it. In turn the used car market and new market balance themselves but at the same time takes a few (CarMax/Carvana) used-only style lots with it. Looks like they’re both already working on going under themselves and I really don’t have remorse for them.

  7. The real winner in this game – one that nobody seems to talk about, is repair shops, both dealer and independent. Not many years ago, if your 15 year old car was faced with a $3000 repair bill, you’d sell it or junk it. Nowadays, it might make sense to pay the $3k and drive it another few years.

  8. I think never. They will drop a bit, but the world will not let us go back to where we were. Inflation has kicked in, wages have increased, etc… Prices will relax a bit, but this is our new norm moving forward.

    I often wonder what the “$500 beater” will start looking like as we move forward. Those are a thing, and will not cease to exist. Just has me thinking…. is it cheaper and less hassle to start new and start depreciating? Or, is it cheaper and easier to buy at $500 and start adding the value you want and care about.

  9. I think it’s going to take a literal market crash for prices to go back to normal. As previous commenters mentioned, there’s a major lack of choices on the low end of the price spectrum, and there’s pretty much no incentive for manufacturers to change that. There’s no viable alternative to car ownership in large parts of the country, so there’s not really a way to opt out of the game when you need transportation. Plus, evs are being mattered as super high tech do-all rocketships, and that’s not helping affordability or adoption.

    Personally, I’m hoping that things get closer to reasonable in the next couple of years, since I’d like to get a phev daily, but I’m not holding my breath.

    1. What’s happening is people are holding onto their cars for longer, reducing the churn in the market. If people only buy wheels when they absolutely need to instead of just because they had a second child, or they’re bored of what they’re driving at the moment, or their kid got their license and doesn’t want to take the bus to school anymore, that’s gonna translate into a huge dip in overall sales. Historically, Americans have bought cars much more often than truly necessary.

  10. Used car prices are probably going to stay high for a while. Stuff like CarMax talking about getting back to affordability is more marketing than progress (and, of course, them lamenting their inflated purchases). They’ll stagnate a bit so that people think the situation has gotten better, but they’ll stay higher (both relative to new cars and indexed to inflation, probably) than they were before.

    The ideal situation for CarMax is worse for us: we all end up accepting high prices and pretending it was always this way. We’ll accept lower trade-in values because things are “going back to affordability,” and they’ll make a lot of money.

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