The company has said it will limit its in-house subprime test to $70 million, at least for now. The test will last about a year. And at the end of that time period, Carmax plans to evaluate whether the program makes sense from a profitability standpoint.
During Friday’s earnings call, both President and CEO Tom Folliard and EVP and CFO Tom Reedy said the main goal of CarMax Auto Finance is to maintain a sustainable source of financing for all its customers. According to the transcript available at Seeking Alpha, Folliard said there are no plans to sign up or test any other third-party subprime providers.
The two execs said that it is still very early in the testing process, and they will share more information when the time is “appropriate.”
In the company earnings report, Carmax said sales financed by third-party subprime providers, or those who purchase financings at a discount, remained flat at 17% of used vehicle unit sales in 4Q in both fiscal 2014 and 2013.
Carmax Auto Finance originated $4.2 billion in net loans in 2014, up from $3.4 billion in 2013.
Folliard told analysts that he believes there is room for CAF to participate in the subprime space, and for its subprime provider partners to continue to grow their businesses, as well.
Reedy said that although the costs are higher to service subprime loans, those costs are not going to be dramatically different from a portion of the business it already does, noting Carmax’s wide spectrum of customer credit profiles.
CAF income grew to $80.8 million in the fourth quarter, up 6% from 3Q14. For the fiscal year 2014, CAF income rose 12% to $336.2 million.