CarMax Auto Finance reported higher income on a lower number of credit applications in the third quarter, as its mix increased toward higher credit-quality loans.
The mostly used-car retailer also said its 2-year-old foray into originating its own subprime auto loans remains very small, accounting for just 0.5% of the captive’s sales penetration in the quarter.
“In Q3, we experienced a year-over-year decline in the number of credit applications across the lower end of credit, but moderate growth at the higher end,” said Chief Financial Officer Tom Reedy in a conference call last week.
Overall, the CarMax captive finance company reported income of $92.3 million, up 2.9% from a year ago. Average managed receivables grew 15.4% to $9.26 billion. For the whole company, net income was down 1.4% to $128.2 million. Tom Folliard, president and chief executive, said higher advertising expenses contributed to the decline.
In December 2013, CarMax caused a stir among Wall Street analysts when it announced it would start originating some subprime auto loans on its own, instead of relying so much on third-party lenders. Analysts worried at the time CarMax’s action could be a symptom of bigger problems in subprime, but the company insisted that wasn’t the case, that it just wanted the experience. Two years later, CarMax still characterizes the move as a “test.”