At Least Someone Is Making Money Selling Cars

Stocks:  (KMX)(GM)(F)(DCX)

CarMax had a profit in its latest quarter. A big one. The company even moved up its forecast for the next fiscal year.

CarMax made a profit of $45 million up from $23 million in the same quarter last year. Revenue rose 24% to $1.77 billion. Gross profit on the used cars sold by CarMax is well above the gross profit on new cars: $1,898 versus $1,108.

The company said that internet traffic, luxury car demand, and a return of SUV buyers as gas prices dropped helped increase sales. CarMax stock hit a record high of $52.77.

But, that’s all yesterday’s news.

What does it mean?

CarMax is the largest retailer of used cars in the US. Oddly enough, the small new vehicle business that CarMax has dropped 3% to $110 million while the used car revenue rose 27% to $1.378 billion.

Another clue is that Detroit says that the average price that it is getting per vehicle is dropping. Incentives for some Chrysler models are over $4,000 a car and GM and Ford are not doing much better.

Consumers do not want to pay retail or anywhere near it for a car. Perhaps it is concern about the economy. Perhaps it is concern about the value of their homes. Perhaps research and internet intiatives like Consumer Reports and JP Powers have convinced buyers that the right used car is virtually as good as most new one.

CarMax results are not good for Detroit. When people buy used, new cars pile up.

Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.

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