CarMax is SOUNDING THE ALARM: Used Car Market RESET | Episode 932

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A minute ago, a law enforcement officer pulled up behind Kyle.

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A chain of events that began two hours ago

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It's noon here in Venture City, New Jersey,

and our nation's capital, Washington, D.C.

And this is Car Edge Live for Thursday,

September 25th with your hosts,

me, Ray, here in Venture City, New Jersey,

and well, Zach, apparently in his apartment

in Washington, D.C., how are you today, handsome?

Do fantastic.

It's a rainy, dreary day here in D.C.

So decided not to head in to the office.

But folks, do we have a show in store for you?

We're gonna be talking about CarMax,

the latest quarterly earnings

from one of the largest car dealers in the whole world.

And wow, wow, wow.

Are there some cracks in that foundation?

That being said, today's show is brought to you

by caredge.com, buy a car without the headache.

Folks, we have a promotion running at this very moment,

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Dad, let's start here from CarMax.

Yes.

And I really wanna preface this with CarMax

has a 28% decline in profit, revenue down 6%.

This was on the heels of one of the largest

independent car dealers in the United States

recently going bankrupt, Tri-Color,

which we've been covering on this channel for a while now

in no way, shape or form, I'm suggesting here,

in the slightest that CarMax is going bankrupt.

No, no, no, no, no, no, no.

I'm simply connecting that we have profit down 28%

revenue down 6% at literally one of the two biggest

used car dealers in the land.

And we have recently seen in the news

another really large top 10 used car dealership group

go bankrupt.

There's some used car market reset happening

at the moment here, Dad.

Well, and not only did their income slide 28%,

their revenue was down 6%.

Their sales were down and just the level set,

they are the largest purveyor and seller

of pre-owned cars in the United States.

They sell retail-wise, I don't know, about 800,000

used cars a year, wholesale-wise maybe another 200,000

so they're trafficking in close to a million

vehicle sales a year.

And so for the largest used car retailer in the land

to be struggling to the degree that they are at the moment,

I think speaks volumes about where we were at

where we were at in the affordability crisis.

And Dad, you can dig into the sales data

but even more damning is actually the finance data.

So when you dig in, you see obviously the top line numbers

profits down, revenues down, and then you dig it

a little bit more and you see, okay, an actual total

number of sales that the largest used car dealer are down.

Well, look at this, Dad, CarMax auto-finance.

CarMax is smart.

They're just like Carvan and they're just like

all these other folks.

They have their own captive financing.

I'm gonna read this whole thing to you, okay?

I know it's a little bit long,

maybe I'll stop it a second,

but CAF, CarMax auto-finance, Dad.

Income decreased 11.2% to 102.6 million

as an increase in the provision for loan losses

outweighed growth in CAF's net interest margin percentage.

This quarter's provision for loan losses

was a staggering $142.2 million

compared to $112.6 million in the prior year's second quarter.

The provision for loan losses in the second quarter

of fiscal 2026 included an increase of 71.3 million.

And our estimate of lifetime losses on existing loans

primarily due to worsening performance among 2022

and 2023 vintages.

So the reason I bring this up, Dad,

is because the top level story is, sure,

CarMax profit down, CarMax revenue down.

The one layer deeper,

you peel back the onion a little bit,

there's sales, there are actual number of cars sold down.

You peel back the onion a little bit more.

They are starting to shake in their boots a little bit

in terms of the performance of their loans,

which is we know how they make most all of their money.

And it is a story we have been covering

across all aspects of this industry

for a long, long time now.

And again, I'm not saying CarMax has gone bankrupt,

not in the slightest,

but it does come on the heels of Tri-Color,

a very large, independent, large dealership group

going straight to chapter seven bankruptcy

because they screwed up in their operations.

It is a damning report here,

I think from CarMax on the state of the used car market

and the state of auto finance,

we talked about it yesterday,

just continuing to kick the can down the road.

Let's just keep writing more loans.

Let's just keep approving more people.

It's a scary, scary time.

Well, you know, in the case of Tri-Color,

you can't just make loans to the people that,

well, you don't have to prove income

and you don't have to have a social security number.

And I mean, yeah,

because what could possibly go wrong?

Let's keep asking this, yeah.

But when you talk about CarMax,

you know, they're an organization

that is more mainstream

when it comes to who they'll approve a loan for.

Now, when you look at their new loan loss provisions,

it indicates to me that they're looking back

at the loans they made in 2022 and 2023

and whatever criteria they used,

it was deficient

when it came to who they would approve a loan for.

And it turns out that more and more of those customers

who bought in those years

are having difficulty in making their payments.

Now, why is that?

Is it simply because,

well, they were higher credit risk people to begin with

or does it have something to do with the fact

that it takes more money today

who get by than it did three or four years ago?

Another reason that Dad could also be

those folks that bought used cars

because that's all you can buy from CarMax

are maybe facing larger and larger repair bills

and are ultimately looking at this car and saying,

okay, you know what, never mind,

I'm done paying off that auto loan.

Dad, I wanna share a few more data points here

from CarMax, then obviously we are gonna touch into

the latest data we have on repair costs.

Look at this.

As of August 31st, 2025, the allowance for loan losses

was 507.3 million.

This is 3.02% of all the auto loans held for investment

up from 2.76% as of May 31st.

So that is CarMax coming out to the public markets

and saying, hey, we have deteriorating performance

in terms of our auto loans.

That being said, the way that these companies make money

is they do not see these loans to fruition.

What they do is they sell them as securitization,

securitized asset-backed securities.

Subsequent to the end of the second quarter

on September 24th, 2025,

we executed our second non-prime securitization transaction,

this calendar year.

This was upsized to $900 million in total notes.

And for the first time include the sale

of most of the residual financial interest

in the transaction to a third party investor,

thus resulting in off-balance sheet treatment,

we expect to gain on the sale approximately 25 to 30 million

in third quarter income.

So you think about that for a second, folks.

Just put all these pieces together for a moment.

The only reason we have loan loss provisions

that is because after the financial crisis,

the federal government Dodd-Frank came in and said,

every single quarter, if you're a financial institution,

if you do lending, you now have to set aside money

for loans you no longer think you're going to come do.

So we've been getting that data for years.

What these companies do, however,

is they just hand the bag off to someone else.

They wrote the loan, they saw it mature a little bit.

In this case, they upsized to a $900 million transaction

so that they could net out their $30 million in profit.

CarMax doesn't care if those people pay off their auto loans.

They sold that bundle of auto loans to other people,

but every quarter, because of Dodd-Frank,

they do have to report to us their expectations

and their expectations are getting worse

at the same time that sales are going down,

at the same time that profit's going down,

at the same time that revenue's going down.

Whoa.

Yeah, I guess somebody else gets to hold the bag

for the bad loans.

I get it, but it really, at least the point in my mind,

when we see what happened to tricolor,

when we see some of the difficulties

that CarMax is reporting, it indicates to me

that the affordability crisis is probably

a little bit deeper than what anybody wants to admit.

It has become harder and harder for average Americans

to be able to afford an automobile.

They were used, whether they're financing it or not.

Why?

Well, the average used car payment today is $550, okay?

For 70 months.

The average new car payment today is $765.

That's before we even talk about automobile insurance

and when you have a loan,

one of the things you're guaranteeing

the lending institution is that you will keep full coverage

insurance on your automobile or truck, whatever it may be.

And well, the cost of automobile insurance

has gone up about 20 to 25% over the past couple of years.

You just showed a headline a minute ago

about the cost of maintenance.

Over repairs, yeah.

And maintenance and repairs for vehicles.

So that has gone up dramatically.

At what point does everybody just throw their hands

into the air and go, everything's too damn high

and I can't take it anymore, okay?

I can't pay for it, I can't afford it

between the rent for my apartment,

between the cost of the food for my family,

between the cost of the loan for the car

and the insurance and the maintenance and the repairs.

I don't have enough money to go around.

And that to me is the bigger takeaway from this.

It's impacting a greater portion of the population

than we thought.

Yeah, that's been my opinion.

I think you're spot on and it's why.

To be very clear, we're offering a promo right now.

If you are in the market, you're part of our community.

We wanna help you save money.

We wanna help you make sure that you're not overpaying

and obviously, we'll cut our profit margin back in car edge

land to help our community out.

We've got the 20% off promo going right now.

So, Dad.

Yes.

We did bring it up again.

I'm gonna pull it back up on the screen.

Car parts, labor and tech complexity,

drive repair bills above $4,700.

So, Dad, this comes from CCC Intelligent Solutions.

Okay.

And they're looking at parts prices,

which have finally started to go up

and the average total cost of a repair.

Yeah.

Which exceeded $4,730 in 2024.

Look at the repair.

Total repairs, all repairs.

Wow.

Isn't that nuts?

Well, that's a lot of money.

It's a ton of money, man.

It's a ton of money and they get into it here.

Part of why we're seeing these prices go up so much,

down here, you've got more technology,

diagnostics and calibrations and all sorts of computers

and things like that.

I mean, it's taking longer for vehicles to get repaired

and there's more complexity when these vehicles

get repaired and it's costing more.

So, that's a huge factor to all of this,

especially if you're a used car buyer

and a used car seller or spent and it's more

a higher cost of ownership.

And the worst part of it is that we know

that the vast majority of Americans

don't have $1,000 to get their hands on

in case of an emergency.

Well, I don't know, I would say if they suddenly

come across a needed repair for their vehicle,

that's $4,730 and they certainly won't have

the money for that.

Perhaps they'll still have enough limit

left on their credit cards to be able

to put it on a credit card.

Oh, man, affordability crisis showing up in other areas,

the price of the used cars that they're trying to sell,

which is why they're selling fewer,

the interest rates, the repairs, the insurance,

it's the full spectrum that's really

screwing the consumer right now.

It is not a good time to be a buyer of most things.

Because I see it when I go to the grocery store,

I don't like to go too far down that path.

But everything has gone up in price.

And so when it becomes harder to be able

to take care of all your living needs,

food, shelter, automotive, what are people supposed to?

And there's, well, here in our country,

we put as much of it on debt as we possibly can.

And then, once you're making your minimum payments,

you're never really paying off that debt.

Let's keep it moving, Pops.

There's another big story that ties into this as well.

Bosch, cutting 13,000 jobs

to try and maintain profitability and sustainability

in this market.

Bosch obviously creating tons of components

that go into vehicles.

This I thought was a huge headline,

especially in light of what we talked about the other day,

Dad, with Solantis shutting down plans

and all sorts of vehicles being discontinued.

I mean, this is another sign of the car market

being in a not-so-great shape.

And it's not just the car market.

It's the entire industry.

It is not just the manufacturer of the vehicles.

It is the suppliers who supply the parts

to the manufacturers to be able to build the vehicles.

They're all trying to navigate higher costs

and lower profit margins.

And it has become increasingly difficult for them to do it.

And one of the ways that they're trying to survive

is you're looking at this.

Bosch is cutting 13,000 jobs.

Nissan is closing seven of their manufacturing facilities.

You see it everywhere.

You know, Solantis is furloughing some of their manufacturing,

postponing some of it, delaying some of it.

Even Carmac said that they are searching for ways

to find $150 million in savings.

God bless them.

I hope they can find it.

I don't know how.

But you know, that's a staggering number.

And so as we start seeing more and more job cuts

and things like that,

it's only going to exacerbate the situation as we know it

because there'll be more and more people

who are going to find it increasingly impossible

to meet their obligations.

There's, what do we do?

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Another headline this morning, replacement auto parts firm,

first brands for pairs for Chapter 11 bankruptcy filing.

I mean, we're not cherry picking.

I mean, these are the headlines.

These are the realities of what's going on globally

for the auto industry.

And all signs point to cracks in that foundation.

But at the end of the day,

I guess if we can get people to prove for auto loans,

maybe the merry-go-round will keep going around.

But the problem is it's going to become harder

and harder and harder.

And the reason it's going to become harder

to approve those people for auto loans

is because most of those people are already overextended

with their existing credit,

whether it be their credit cards

or whether it be that their rent increased, whatever it is.

So as more and more people fall behind,

whether it be paying their credit card,

whether it be paying their utility bills,

whatever it may be,

it is going to become increasingly harder

for banks to be able to approve some of these people

for auto loans to keep that merry-go-round going around.

It is a sad reality that in many cases

we don't want to recognize.

We want to pretend that it's okay

that there'll be enough people out there

that'll be able to keep this going

when, in fact, that might not necessarily be the case.

Yeah, absolutely.

Okay, Dad, let's take a quick breather

from that storyline.

We had an interesting headline in automotive news,

Brother versus Brother.

In Laws 2 to Alleging Financial,

Ms. Khanda got a dealership.

What is going on here, Dad?

Well, you know, one brother wants a little more money

than the other brother, even though they both control

50% of the business.

And, you know, sometimes...

This is like hard dealership reality 101, isn't it?

Oh, my God, it is, it is.

It's kind of sad in the sense that, you know,

these are brothers, you know,

this is a family business,

fourth-generation family business

where one brother is alleging

that the other brother is withholding income

to the first brother,

has been showering gifts and salaries

onto his family members, not necessarily his brother, though,

and, you know, spending unwisely.

And they had come to some type of agreement,

a settlement where the one brother was going

to pay the other brother like $8.5 million

and buy him out of the business.

He hasn't given him any money,

so it's just kind of sad to watch, you know,

family members fight this out.

This is not uncommon in the auto industry.

I'm thinking Dad of Dark Cars,

which is relatively close to where I live here in Washington.

Absolutely, yeah.

Out in Maryland.

The Darvish family, I mean,

I think if I'm not mistaken,

wasn't it like the daughter of the owner?

Yeah, Tamara, I think her name was.

Yeah, they forced her out.

They forced her out?

Yeah, yeah, she was like, she was like me.

She was the spokesperson for the family and for the group.

She was primarily the face of the franchise,

probably because she was a woman

and she looked better than her brothers.

And, you know, but her father said,

nah, you know, we love you, but I love my sons more.

And they literally forced her out of the business.

And so this is a little bit of what happens

in the car business.

There's a lot of like family dynamics,

typically some nepotism, yeah.

There are any number of children of dealer principles

that have a high paying jobs within dealerships

and upper management positions within dealerships,

not because they've earned them,

simply because the owner said,

well, you know, the fruit doesn't fall far from the tree.

This kid's got to be good.

And in so many cases, the kids don't want to do it.

They would, you know, if you want to just give me the money,

give me the money, but it is not uncommon

in the automobile industry for sons and daughters

to end up in high paying,

high, high important positions within dealerships

that have realistically no reason to be there.

And then you get your headline in automotive news

about lawsuits and things like that.

One more story for today, dad.

This comes from LinkedIn.

Yes.

It actually is a post-fri a dealer over there.

I'm going to read it out.

This is from Andy Wright.

I've been writing about this issue.

This is from yesterday.

I've been writing about this issue

for almost three years now.

I can't believe it's almost Q4 of 2025.

And we still have no proactive solution in place

on the large third party classified listing sites

like car gurus, cars commerce, car facts

and auto trader US to police deceptive pricing tactics

by dealers trying to gain the system.

In doing so, they are not only deceiving retail customers

but they are also compromising the data

that everyone in our industry uses

to appraise market and merchandise inventory

within software systems

that many of the same third party

classified listings platforms own.

It's mind boggling to me

that the aforementioned companies

continue to refuse to take proactive action

to police this stuff on the platforms they manage

in either brand or D platform dealers

that engage in these practices.

It's time that the leaders of these companies

take responsibility and do the right thing

but one can only imagine that they will not

because it might mean losing the monthly revenue

from dealers that leave their respective platforms

because they can no longer gain the system

and deceive people.

Where is accountability

from the big third party listing companies?

And you can see here,

we've got an example from Andy.

Steelers advertising a $39,799 2021 BMW 3 series

and it's a fair deal

but it doesn't include the $799

catalytic converter etching,

the door edge guards and cup guards for $395

and appearance package for $1,495, et cetera, et cetera.

Et cetera.

Now, Deb, the reason I bring this up in part

is because I think it's a great point

and also I'm in here commenting

about what that we're doing.

So I commented.

I said, we are so close to car edge

to have a solution in market.

Our AI agents are receiving thousands of out the door quotes

each month and more organizing and compiling the data

to show users which dealers add fees

and add-ons to their online advertised price.

Having to show you a demo, Andy,

I appreciate you continuing to beat this drum.

It's important no one wins in the current paradigm.

And dad, I was the load away by this response.

I saw that.

Yeah.

Zach Shefska, this is from a man named Ryan.

You are running AI agents to dealers

every month to get quotes from them.

Do you care about the fact that you are wasted

the time of the salespeople?

The sales reps that are engaging with your AI bots.

And I replied, where was it?

Wait for it.

I guess this all gets.

How do I not see my reply?

Wow.

It looks like my reply got taken away.

I doubt it.

Do you see it here?

No.

Did they remove my reply?

I don't know, but what was your reply?

Oh, there it is, right there.

Okay.

Customers pay us $40 to access the agent.

The only reason they are paying that

is because they are highly intentioned

and want to buy a car.

Our third party listings program has 42% 90 day sales rates.

Our audience is uniquely high intentioned

if you're mistaken, Ryan.

To which he said, I don't think you actually

answered the question.

Customers pay you $40, they can run multiple AI bots

across multiple dealerships at once.

How does that not waste the time

of the salespeople at the stores?

So two things going on here, dad,

that I want to bring up.

One is, I freaking love Andy Wright.

He's been beating this drum for years.

Yes.

He's been saying, hey, car gurus, cars, commerce, car facts.

You guys don't actually provide a solution

to consumers or to dealers.

You allow bait and switch pricing.

And we at CarEdge obviously want to eliminate that,

abolish that, and the way that we've come

without delivering that is using AI agents

to reach out to dealers on behalf of customers,

get OTDs, organize them, and then flag dealers

who do add-ons, bait and switch, things like that.

That is coming through.

Yeah.

Then there's this principle debate from this man, Ryan.

Isn't it unethical or immoral to have AI agents

contacting dealers?

Isn't that wasting dealership?

Well, I think what Ryan is suggesting is that,

the customer really should be the one

that has the waste their time doing it, not the AI agent.

And realistically, Ryan is suggesting

that because customers can use this AI agent bot

to negotiate on their behalf with more than one dealership

that we're wasting salespeople's time.

Not really.

Perhaps maybe the salesperson would actually answer

the original email with the information

that is requested.

It's not even that, though.

It's anybody's time.

It's not even that.

Sorry, man, sorry to cut off.

What is the way to get the best deal in today's market?

You contact a dozen dealers.

You ask them for an OTD quote, you negotiate.

Who cares if you're using an AI agent to do that

or you're doing that?

It doesn't matter.

It's the tactic is still the tactic.

So I don't even care.

I don't care about anything.

It's like, that's the way to get the best car deal.

We made it so that a user can click a button and do that

instead of having to spend, I don't know,

two or three hours going back and forth with each dealer.

Like, it's just black and white here.

And so the idea that it's wasting a salesperson's time

is the equivalent of saying

when a customer reaches out on their behalf,

they're still contacting 10 dealers.

Who cares?

Well, my point is when you listen to Ryan's argument,

Ryan's argument is basically saying,

hey, we like the status quo.

The people's time that's going to be wasted

are the customers who are trying to buy the vehicle

because that's the way we want it to be.

We would much rather waste the customer's time

than have the customer waste our time.

Well, I've got a great idea.

How about we find a compromise

that doesn't waste anybody's time?

Maybe it's time to pull the automobile industry

kicking and screaming into the 21st century

and realize that you need the customer

more than the customer needs you.

There's two huge things here.

One is sooner rather than later,

we are going to make it so that car edge

provides all the data.

You know, if you're car gurus,

hi car gurus, if you want to work with us, you can.

We'll give you an API to access dealer add-on data.

You want to be able to address Andy's point here?

You don't, the customer doesn't even have

to come to caredge.com.

We'll sell that data.

You want to know it?

We'll sell it to you.

Put it on car gurus, put it on car facts,

put it on cars, commerce.

I want everyone and their brother

to have access to that information

to finally level the playing field.

And the AI agents give us that data in an organized way

in a database that we can then leverage, right?

So that's one.

Two is the tactic is you contact multiple dealers,

you get the best price.

Who cares if it's a human being doing it

or an AI agent doing it?

And quite frankly, a customer spending 40 or 50 or 100

or a thousand bucks to get access to tools

to help them buy a car,

how much more of a highly qualified customer lead?

Lead, do you need?

Get out of here, man.

Come on.

Like this is so good for the industry, so good.

And to your point, I think it's gonna happen

with some dealers embracing it, dealers like Andy

and other folks out there kicking and screaming

saying, no, this is the worst thing

that could possibly happen.

No, the future is more efficient.

The future is way more tech enabled

and the future is way less opaque

and much more transparent.

And I'm seeing through this fight that,

well, we're probably not gonna get invited

to any automotive news things

where they want us interacting with those in the industry.

We're gonna be there, we're gonna be there

because if you're pissing people off,

you're doing things right.

And there's also gonna be people

that evangelize the work that we're doing that

because it finally solves the root problem,

which Andy's right, those companies aren't going to do

because they're gonna lose their subscription revenue

and they're publicly traded.

They have to every single quarter go out there

and say, we're making more money.

No, CarEdge is the only company that's positioned

to actually do this and it fires me out.

Well, I am so glad you're fired up.

When are you gonna take that bike down off the wall

and ride it somewhere with all that energy you have today?

Ride it all the time, that it's rainy here today,

isn't it?

Oh, okay, well then don't do it today.

Anyway, I thought that was super interesting y'all.

So I wanted to share it and I'll go back

and reread some of the comments

that came through during that time.

And if you are interested you can use our AI negotiator,

just go to caredge.com

and you can get access to it from the CarEdge car search

or just go to caredge.com slash AI.

And again, surfacing and providing all this data

that we're getting on who adds add-ons,

how much they charge dock fees, hiding fees

from advertised price to OTT, that will all be coming soon.

And quite frankly, I really do hope

that those big players in the space

have a relationship with us someday

and on each listing, it should have

like the CarEdge scorecard or the CarEdge report card

and it shows, hey, this dealer's known

to actually increase their prices by 12%

when you actually get the out the door price

because they add fees, they add add-ons.

That's good data.

We wanna get that in as many people's hands as possible.

Yeah, that's the type of data that consumers can use.

When you can compare two local Honda dealers

and you see one has $3,000 worth

of mandatory accessories that you need to buy

and the other has zero.

But the one that has zero usually has a higher listed price

but there is gonna be zero additions,

I'm going to the one that has zero additions.

And that's how that information can be

significantly important to the customers out there.

Oh, it's coming folks.

It is coming from Rich.

Thank you, Rich, really appreciate

the very kind contributions.

Found Zach's manual transmission learner,

the Hennessey F5 Hypercar.

Over 2,000 horsepower and a frugal $3 million price.

You know, may I say that I think it was Tuesday,

I went and got my car serviced

and I found the perfect learner

and it was a six speed manual transmission

from Mazda Miata 5.

Rag top, beautiful car, love it.

What, it's a $3 million price point?

I think it was 33,000, maybe 35,000.

Beautiful two-seater, lovely color

and I thought to myself, you know,

I could get in there with Zach to help teach him.

I just may never get out because it's so loaded

but oh, that would be such a fun car

for you to learn on.

Yeah, I think that would be a potential.

Well, thank you, Rich, for the kind contribution.

Hey, I just want to call out folks,

if you work professionally, whatever,

if you're on LinkedIn, come follow me over on LinkedIn

and endorse the stuff that we're doing over here.

Like that comment that I just shared.

Let's have our voices be heard here.

Remember, the CARS Act was supposed to help

with a lot of this, but obviously,

that's not coming to fruition.

So it's going to have to take companies

in the private sector or public sector.

It's going to have to take like a company

to figure it out, not the federal government.

So please, if you're not following me

or engaged with me over on LinkedIn,

I would really appreciate it,

especially as we go more and more public

with commentary like this.

And again, a huge shout out and thanks to Andy

for starting the conversation,

but it's really important that the auto industry knows

we're here and we're changing this paradigm

and we are going to deliver.

Whether people like it or not, I don't know,

but we're going to deliver

because it fulfills our mission

and what we're passionate about.

Absolutely.

Well said, young man.

Okay, folks, that's a show.

We'll be back tomorrow for another one

of CarEdge Live, a Friday edition.

So that should be quite fun.

I'm going to eat some lunch and get back to work then.

You know, I was just thinking the same thing,

except for the get back to work part.

But I was thinking...

Okay.

I'm going to eat some lunch, yes.

Love it.

All right, well, enjoy that.

Thank you everyone for tuning in

and we'll catch you back here tomorrow.

Yep, have a great Thursday, everybody.

We'll see you tomorrow at noon Eastern 9 Pacific.

Thanks for being here today, guys.

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CarMax is SOUNDING THE ALARM: Used Car Market RESET | Episode 932

Bmw 3

Buick Century

Mazda MX-5 / Miata

About this episode

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