CarMax, Inc (NYSE:KMX) on Friday reported weak fiscal first quarter revenue margins, however profit met Wall Street Journal expectations. The used-car vendor said that average selling prices dropped 1.6% in the fiscal first quarter, raising concerns in the U.S vehicle industry which is heavily dependent on the second-hand vehicle prices as the prices serves as a driver in retailing of new automobiles.
The average dealing-price slipped from $20,173 year-on-year to $19,851 in the latest quarter. The decline in prices starts in the previous quarter and it looks that the trend is continuing.
The melting of used-car industry starts at the beginning of the current year and if this drifting of users continues then it would be a bad sign for vehicle industry which is continue to introduce more and more innovative cars but reluctance of users may squeeze the efforts of the vehicle industry.
In May, Manheim vehicle auction company said that wholesale pricing has been dipping, though pre-owned vehicle trading market is on stable side. Black Book, an auto research website which publish pricing details of vehicles on daily basis, has reported a $15,037 average price for 2009 through 2013 years vehicle models, that selling price was 1.2 percent down in May compared to selling price in April and further 13.7% down from a prior year period. The publisher said that selling prices starts dipping around the end of the month.
The decline in used-car prices was attributable to strong pricing of new-vehicles. Average dealing prices of new vehicles hiked to $30,044 per vehicle sold in May, compared to $643 in a year earlier period, according to information provided by J.D. Power & Associates. The increase in prices was evident from the buyers increased procurement of pricier trucks and sport-utility vehicles, which are easily available on long-term loans.
“This could be the beginning of the bursting of the used-car pricing bubble that has been growing for years,” said Dan Hearsch, a director in the automotive practice at consultants AlixPartners. “And since the used- and new-car market are really just one market, that wouldn’t be good news for new-car prices, just compounded by the fact that the Fed appears to be getting serious about raising interest rates.”
CarMax reported an increase of 9.3% in sales of used cars, while same-store used-car sales jump 4.9%, contributed by intensive buying activity and conversion.
The firm’s auto finance unit posted a net profit of $109.1 million, a boost of 15.3% is observed.
Total profit stood at $182 million for the fiscal first quarter, or 86 cents a share, compared to $169.7 million, or 76 cents a share, a year ago. Net revenue along with operating revenue spiked 7.1% to $4.01 billion. Analysts forecasted income of 86 cents a share and $4.16 billion in revenue.
