CarMax grew its auto finance portfolio by 10.6% in the third quarter while also lowering its loss expectations, the company reported in a December earnings report.
The used-car dealership’s financing arm grew originations 8.2% year over year to $1.45 billion in the third quarter. That rise pushed CarMax Auto Finance’s average receivables to $11.4 billion up from $10.3 billion during the same quarter the year prior.
The company’s income rose 15% to $102.8 million. Additionally, charge-offs were down as the company lowered its loss provisions to 1.3% of total receivables compared with 1.6% during the same period the year prior.
A growing portfolio with lower losses bucks the trends seen broadly across the industry and Chief Financial Officer Tom Reedy didn’t have a clear-cut explanation as to why CarMax is a standout during the company’s third-quarter earnings call.
“I don’t know if we’re a bellwether or we just run a little bit differently than what you’re hearing elsewhere,” Reedy said. “As we are growing the portfolio, the loss provision is lower by $4.4 million this year and that’s really a reflection of last year we were in an environment of escalating losses. So, not only were we missing our booked expectations, but we were building the provisions for an expectation of higher losses. And this year in all three quarters we have been generally in line with our expectations.”
CarMax’s gains could be attributed in part to an increased demand for used vehicles as a record number of off-lease vehicles hit the market. However, while used-vehicle sales are up overall for the year, sales were lower in the third quarter due to inventory constraints from the hurricanes that hit Texas and Florida, according to an Edmunds report.
Additionally, higher sales haven’t resulted in more used financing. Experian reported a 1% drop in total used financing year over year during the third quarter.
