CarMax Auto Finance provision for credit losses up 25%

CarMax Auto Finance increased its provision for credit losses due to an uptick in expected losses, while originations ticked down during the retailer’s fiscal second quarter. CarMax Auto Finance (CAF)’s provisions for credit losses increased 25.4% to $112.6 million for the fiscal second quarter of 2025, ended Aug. 31, due to an 11%, or $52.2 million, increase in CAF’s estimate of lifetime losses on existing loans, according to the company’s earnings release today. CAF’s finance income landed at $115.6 million, down 14.4% YoY. “CAF results were pressured by an uptick in losses that are being experienced industrywide,” Chief Executive Bill Nash said during today’s earnings call. Credit tightening contributed to a decline in Richmond, Va.-based CAF’s allowance for credit losses (ACL) to 2.82% of the captive’s $17.7 billion portfolio compared with 3.08% a year ago, according to the release. By comparison, ACL stood at 2.79% of the $17.6 billion portfolio in fiscal Q1 2025. Consumers are struggling with high costs and growing debt, with borrowers who took out loans in 2022 and 2023 especially feeling the effects of having purchased vehicles when prices and rates were more elevated, Jon Daniels , senior vice president of CarMax and president of CAF, said during the call. “To combat these results, lenders have generally tightened underwriting where necessary and have adjusted lifetime loss expectations based on weakening performance,” he said. “CAF has, to some degree, experienced similar challenges emerging within the industry, but our customers have largely shown an ability to navigate this added inflationary burden. During this last quarter, we observed additional pressure on the consumer, and as a result, we added to our provision accordingly.” Originations, finance penetration dip CAF originated $2.2 billion in loans during the quarter, down 1.7% YoY, according to the release. The captive’s portfolio ticked up 2.4% YoY to $17.7 billion. CAF’s penetration rate dipped 80 bps YoY to 42%, according to the release. Financing penetration in Tier 2 originations, for which third-party financiers pay CarMax a fee or to whom CarMax does not pay a fee, decreased 40 bps YoY to 17.7%. Finance penetration of Tier 3 originations, from third-party lenders to whom CarMax pays a fee, rose 30 bps YoY to 6.7%. During the second quarter, CAF began testing “full spectrum credit scoring models and corresponding strategies across both the Tier 1 and Tier 2 spaces, and we expect our Tier 3 testing of the new model to begin during the third quarter,” Daniels said. CAF earlier this year launched a strategy to split its auto asset-backed securitizations between prime and nonprime following the issuance of the lender’s first nonprime deal in June. Net interest margin landed at 6.1% of average managed receivables, in line with a year ago, according to the release. CAF’s weighted average contract rate ticked up 40 bps YoY to 11.5%. Sales up 5% CarMax sold 211,020 used vehicles in Q2, up 5.1% YoY, according to the release. Gross profit per vehicle came in at $2,269, up 0.8% YoY. The retailer bought 269,000 vehicles from consumers, down 1.2% YoY, and 31,000 vehicles from dealers, up 61.4% YoY, according to the release. “We bought more vehicles from dealers, achieving a second-quarter record,” Nash said. Shares of CarMax [ NYSE: KMX ] were trading at $78.21 as of market close today, up 5% from market open. The company has a market capitalization of $12.2 billion. Auto Finance Summit, the premier industry event for auto lending and leasing, returns Oct. 7-9 at Wynn Las Vegas. To learn more about the 2024 event and register, visit www.AutoFinanceSummit.com.

CarMax Auto Finance provision for credit losses up 25%

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