Tag Archive | "CarMax"

Recalled Cars Create A Costly Problem for U.S. Auto Dealers

Honda Motor Co’s order that its U.S. dealers stop selling some 2.2 million of the automakers’ most popular models is compounding financial and regulatory headaches for car dealers stuck with millions of vehicles that have potentially hazardous air bags or other safety defects, reports Reuters

With the recalls affecting Honda vehicles dating back several years, used-car dealers are facing increased pressure. It is legal under federal law to sell used cars with unrepaired safety defects that are subject to recall, but dealers that operate under franchises with manufacturers could be violating those agreements.

It is illegal to sell new cars that are subject to a recall under federal law.

Because some used-car dealers operate independently of any manufacturer, the growing number of used cars that need safety repairs is creating divisions among dealers. The National Highway Traffic Safety Administration says this difference creates a “safety loophole.”

John Isaacson, a Honda dealer in Auburn, Maine, said he was hit by three recalls the same day, but would respect Honda’s ban. “If people are selling these with open recalls, customers get mad,” Isaacson told Reuters. “Over time, it’s not good for business.”

Regulators have taken steps to address sales of used cars subject to safety recalls.

In a settlement last month with General Motors Co and two dealer groups, the Federal Trade Commission warned automakers and dealers not to claim that used vehicles sold as “certified pre-owned” cars had undergone comprehensive inspections if repairs required under a recall had not been done.

“Companies touting the comprehensiveness of their vehicle inspections need to be straight with consumers about safety-related recalls,” Jessica Rich, director of the FTC’s Bureau of Consumer Protection, said in a statement.

As in Honda’s case, manufacturers sometimes issue a “stop sale” on models subject to recall and can penalize their franchise dealers if they sell such cars.

The head of the California New Car Dealers Association, Brian Maas, said one of his members had 15 percent of his inventory affected by the Honda recall.

However, dealers outside the new vehicle franchise system, whether independents or chains such as CarMax, the largest U.S. used-car retailer, can sell such cars.

AutoNation Inc, the largest new vehicle dealer group in the United States, has said it will not sell a new or used vehicle that needed repairs under a recall, and Chief Executive Mike Jackson is calling on rivals to do likewise.

In the meantime, Jackson told Reuters, the policy is proving costly, in part because the chain has to stock more vehicles to make up for the roughly 16 percent of inventory it cannot sell.

AutoNation, with its huge network of dealerships, can “afford to do the right thing,” said Kelley Blue Book analyst Rebecca Lindland. Smaller dealers need to turn cars quickly and cannot afford dead inventory.

Honda has said parts to repair the Takata airbags will not be ready until late summer.

CarMax says it is transparent about recalls on its used cars, including a link on each car’s listing on the website to search for open recalls. Carmakers do not allow CarMax to perform recall repairs, so customers are “best positioned” to get repairs at franchised dealers after purchase, the company says.

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CarMax Soars as Earnings, Revenues Top Analyst Estimates

CarMax Inc., the biggest U.S. auto dealer by market valuation, soared the most in five years after its fiscal first-quarter earnings and revenue topped analyst estimates as increased customer traffic boosted vehicle sales, reported Bloomberg.

Shares of CarMax jumped more than 16 percent to $52.75 at the close in New York, the biggest gain since June 19, 2009. CarMax had declined 3.7 percent this year through yesterday.

Net income for the three months ended May 31 rose 16 percent to $169.7 million, or 76 cents a share, the Richmond, Virginia-based company said in a statement. Analysts had estimated 67 cents, on average. Revenue advanced 13 percent to $3.75 billion, compared with a $3.59 billion projection from analysts.

Demand for autos has risen with an improving job market, more housing starts and low interest rates. That drove the annualized pace for new light-vehicles sales, adjusted for seasonal trends, to 16.8 million last month, the fastest rate since February 2007, according to Autodata Corp. CarMax said comparable-store sales rose 3.4 percent, with used-vehicle revenues advancing 13 percent and new-model revenue jumping 33 percent. CarMax operates 136 used-car superstores in 68 markets.

CarMax’s financing unit saw income rise 8.7 percent to $94.6 million during the period, as the company continues testing a subprime loan program. Some $20.5 million, or 0.8 percent of retail unit sales, were originated through that program during the period, according to the statement.

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CarMax Posts Profit

CarMax Inc., the largest used-vehicle seller in the U.S., said its fiscal second-quarter profit rose 4.8 percent despite 2009 gains on increased sales and prices, The Wall Street Journal reported.

The Richmond, Va.-based company has seen results improve sharply this year amid rebounding sales. The used-car business held up relatively well during the economic downturn as customers avoided more-expensive new models.

For the quarter ended Aug. 31, CarMax posted a profit of $107.9 million, or 48 cents a share, up from $103 million, or 46 cents a share, a year earlier, which included 10 cents of gains.

Revenue jumped 13 percent to $2.34 billion from $2.08 billion a year ago. Same-store used-vehicle sales increased 4 percent.

Analysts polled by Thomson Reuters most recently expected earnings of 40 cents on $2.27 billion in revenue.

Gross margin narrowed to 14.9 percent from 15.1 percent amid higher costs even as average selling prices rose 5.2 percent and 0.2 percent, respectively, for used and new vehicles.

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CarMax Earnings Surge as Financing Operations Rebound

CarMax Inc.’s profit nearly quadrupled on an improvement at its financing operations as used-vehicle sales climbed, The Wall Street Journal reported.

Shares jumped 9.8 percent premarket to $21.95 as results easily beat analysts’ expectations. As of Tuesday’s close, the stock had risen 45 percent in the past year.

The 9 percent same-store-sales increase “reflected the benefit of a continuing gradual rebound in customer traffic, as well as the easy year-over-year comparison,” the company said.

Vehicle sellers had a horrific start to 2009 in the wake of the financial crisis, with industrywide sales at levels last seen in the 1970s. CarMax’s business is used cars, which proved to be more recession-resistant as consumers opted to buy the less expensive used cars rather than new ones.

For the quarter ended May 31, CarMax reported earnings of $101.1 million, or 44 cents a share, up from $28.7 million, or 13 cents, a year earlier. The most-recent quarter included a 3-cent benefit because of the finance arm’s loan-loss position, while the year-earlier quarter included a net reduction of 9 cents because of increased funding costs and other finance arm-related adjustments that were partially offset by a litigation settlement.

Revenue jumped 23 percent to $2.26 billion.

Analysts polled by Thomson Reuters had most recently forecast earnings of 33 cents on $2.09 billion in revenue.

Gross margin fell to 14.7 percent from 15.1 percent even as the average selling price on a used vehicle rose 8.9 percent to $17,964.

The company’s auto-finance business swung to a profit of $57.5 million from a year-earlier loss of $21.6 million.

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