CarMax Auto Finance experienced the “largest single origination quarter” in the lender’s history in the first quarter of fiscal year 2022 amid improved interest margin, lower funding costs, and an emphasis on purchasing cars from consumers.
CAF’s first-quarter originations clocked in at $2.5 billion, a 150% year-over-year increase, marking the company’s first-ever quarter above $2 billion, Jon Daniels, senior vice president of CarMax Auto Finance, said on the lender’s earnings call today.
CAF’s total interest margin, or the spread between interest and fees charged to consumers and the lender’s funding costs, also jumped 100 basis points YoY to 6.9% of managed receivables, according to the company’s earnings report today. Total average managed receivables came in at $14.1 billion in the first quarter, a 5.5% YoY increase.
Better interest margin contributed to a 374% YoY increase in CAF’s income to $241.7 million. Income also jumped due to a reduction in loan loss provision to $24.4 million in the first quarter from $122 million during the same period last year, as well as growth in managed receivables.
As of May 31, CAF’s allowance for loan losses of $379.5 million accounted for 2.62% of managed finance receivables, down from 2.97% as of Feb. 28, as customers continue to make their auto payments, Daniels said.
To combat stifled used-vehicle inventory across the market, CarMax bought 341,275 vehicles from consumers in Q1, an increase of 236% YoY and up 77% compared with the first quarter of fiscal year 2020. E-commerce retailers Carvana and Shift have also turned to consumers’ garages to replenish supply as the entire industry looks to capitalize on a surge in demand.
Also in Q1 2022, CarMax sold 452,188 units, a 128% YoY increase and a 31% jump from the first quarter of fiscal year 2020. CAF’s penetration rate of 46.7% is up from 38.2% YoY. Richmond, Va.-based CarMax, which operates more than 220 stores across the county and employs 27,000 associates, finalized the acquisition of automotive information provider Edmunds earlier this month.
Meanwhile, CarMax continues to invest in its omnichannel experience, and increased the number of retail customers who can independently complete an online sale to 40% in Q1 2022 from 25% at the end of Q4 2021, Chief Executive Bill Nash said on the earnings call. “We continue to leverage digital innovations to drive growth with our online instant appraisal offerings, where customers can receive an online offer on their car in less than two minutes and have payment at hand the same day,” he said.
Shares of CarMax [NYSE: KMX] were trading up 6% at $126.55 as of 12:57 p.m. ET today. CarMax has a market capitalization of $20.7 billion.