CarMax originates $15 million in subprime loans in latest quarter

The recent decline in subprime loans at CarMax came as the company saw a rise in sales financed by its Tier 2 lending partners, which specialize in nonprime loans. Photo credit: BLOOMBERG

CarMax Inc.’s finance arm originated about $15 million of subprime loans in its most recent quarter ended May 31, said Tom Reedy, CFO of the nation’s largest auto retailer, combining used and new units.

CarMax Auto Finance has originated almost $90 million in subprime loans since it began a test program in January 2014, Reedy added.

The test is designed to enable CarMax to learn more about customers that it typically had handed off to its subprime lending partners, which it calls Tier 3 lenders.

Vehicles financed by those Tier 3 partners and subprime loans financed by CarMax’s lending arm represented 14.5 percent of retail vehicle sales in the quarter, down from 16.1 percent in the same period last year.

More nonprime

Reedy said the decline in subprime loans came as the company saw a rise in sales financed by its Tier 2 lending partners, which specialize in nonprime loans.

“We pay $1,000 per car in the Tier 3 space, and we make $300 a car from the lender in the Tier 2 space,” Reedy said during a conference call reviewing the company’s quarterly results.

“So every time we are shifting that volume, we are going from $1,000 out of pocket to $300 in. Our third-party finance net income, which is actually an expense, was actually flat year over year with 9 percent sales growth. That’s a direct result of the mix of Tier 3 being a little bit lower.”

Revenues from extended protection plans -- including extended service contracts and guaranteed asset protection, or GAP -- increased 12.5 percent from the same period last year, primarily the result of growth in the company’s overall retail vehicle sales. CarMax’s sales of used vehicles rose 9 percent in the latest quarter to 164,510 units, while its sales of new vehicles fell 15 percent to 2,215.

Finance net outpaces total

CarMax Auto Finance income in the quarter grew 15 percent to $109.1 million as a result of a 17 percent increase in average managed receivables to $8.66 billion. The company also had better than anticipated loan charge offs.

The company’s total net profit rose 7 percent to $182 million in the latest quarter, as revenues rose a like 7 percent to $4.01 billion. CarMax has 150 stores in 75 markets.

You can reach Arlena Sawyers at

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