CarMax Inc.’s finance arm will continue its subprime lending test and might expand it in the future. But the unit won’t become a “full player” in that space, said Tom Reedy, CarMax’s CFO.
“We have three partners in the subprime space who are doing an awesome job,” and any decisions about growing the program would include considering the impact on those partners, Reedy said during CarMax’s earnings conference call with analysts and reporters this month.
“I would not expect us to ever intend to be a full player in this space like we are in the prime space,” he said.
Reedy said CarMax Auto Finance, for the time being, will continue to originate loans under the test at its current rate of 5 percent of subprime vehicle sales or a little less than 2 percent of overall loan originations. The captive finance arm had originated $72.2 million of receivables under the test as of Feb. 28.
Reedy said CarMax started the test program in January 2014 to learn more about customers it had typically handed off to its subprime lending partners and “risk diversification.”
In a previous conference call, Reedy said CarMax pays a discount of about $1,000 to its Tier 3 lenders -- described as those specializing in funding subprime loans -- to cover the risk associated with those loans.
In CarMax’s fiscal year that ended Feb. 28, income at CarMax Auto Finance increased 9 percent to $376.3 million. Average managed receivables grew 19 percent to $7.9 billion.
CarMax is the nation’s largest retailer of used vehicles. In its fiscal year ended Feb. 28, it retailed 582,282 used cars and trucks, more than double the 214,910 retailed by AutoNation Inc., No. 2 in used retail sales, in calendar 2014.