Income at CarMax's captive finance arm rose 8.5 percent to $109.4 million in the company's 2018 fiscal first quarter, ended May 31, even as its financing penetration fell.
CarMax Inc., the nation's largest used-vehicle retailer, said average managed receivables at CarMax Auto Finance increased 11 percent to $10.83 billion. Net loans originated rose 7 percent to $1.5 billion.
CarMax Auto Finance accounted for 47.3 percent of financing at CarMax dealerships in the quarter, down from 49.1 percent a year earlier. CarMax CFO Tom Reedy said the dip in the captive's penetration had more to do with the "historically high" levels it reached last year than any other factor.
Nonprime financing penetration at CarMax stores, or financing to customers CarMax calls Tier 2, rose to 19 percent compared with 18.5 percent a year earlier, while third-party financing to customers with low credit scores, or Tier 3 customers, accounted for 10 percent of financing on the quarter, down from 11.2 percent a year earlier.
The decline in Tier 3 financing was pinned on credit tightening at CarMax's outside lenders, though the "Tier 3 headwind was less than we've experienced in recent quarters" because much of the tightening occurred during the first quarter of fiscal 2017, Reedy said during a conference call with investors last week.