According to Carmax, stocks fell further. Shares of online used car startups Vroom, Carvana and Shift have already plummeted

Carmax faced opposition against ridiculous prices. Used car startups face an existential crisis. Vroom shares fell 97%.

By Wolf Richter for WOLF STREET.

For used car dealers who trade publicly, Carmax is the adult in the room. Vehicle IPOs and SPACs Carvana, Vroom and Shift Technologies, which are used only online, lose money, and you can never make money selling them because used cars are not designed to be profitable. Their shares plummeted in a spectacular demonstration of how Wall Street systematically cleans stock jockeys, either directly or indirectly.

But Carmax makes money. Yet its earnings report today saw its already defeated shares fall nearly 10% to $ 93.33, where they originally were in 2019. It is down 40% from the November high. The revenue report pointed out the problem that the industry has created for customers who are confused by the inflationary attitude: absurd prices. But enough customers suddenly resist. Before coming to Carmax, let’s take a look at three used vehicle dealers whose stocks have completely collapsed.

Vroom [VRM] It started trading in June 2020 following its biggest IPO. Its shares fell 97% from their September 2020 highs to close at $ 2.08 today, another new never-before-seen (data via YCharts):

Shift Technologies [SFT] Went public in 2020 by merging with SPAC. The contract was announced in June 2020 and expired in October of that year. Its shares fell a maximum of 87% on June 29, 2020, ending today at $ 1.89 (data via YCharts):

Carvana [CVNA], The original online-only used auto dealer, went public in April 2017 at an IPO price of $ 15 per share via IPO. Despite the huge and increasing losses every year for the past six years, this turmoil has made stocks higher and higher. In August 2021, the stock topped the list at $ 376. And it was. The great spirit of exaggeration suddenly disappeared. Today, they closed at $ 100.78, down 73% from the highs and returning to the February 2020 levels:

These charts are charges The traitors who played on Wall Street, trusting Fomo, trusting PDF, trusting Yolo, trusting all the other memes, praying, lament about the confused stock jockeys who bought these items in a wing and prayer. Because they found this method to be different or they did not invent and bought.

But Carmax A professional with experience. They know what they are doing. Vroom, Carvana, have been making huge profits for many years in the same business of losing arms and legs as Shift.

Carmax today reported a 5.2% decline in the number of vehicles sold for the quarter ended February 28, down 6.5% on a comparable store basis. .

But its average retail price increased by 39.7% or $ 8,300 per vehicle. In other words, its customers paid on average And $ 8,300 For a vehicle than it did a year ago. This is the biggest price increase.

Thanks to these ridiculous price increases, its used vehicle dollar revenue increased by 32.6% and total revenue by 48.8%.

But this cannot be maintained. Enough consumers have received it. Their opposition is already creating an abyss – as Carmex points out today.

According to Cox Automotive estimates, the total number of vehicles sold by dealers in March to retail customers across the industry fell 15% year-on-year. This came despite a huge year-on-year increase in tax refunds in March.

But wait .. it was March which was not included in the CarMax revenue statement today for the quarter ending February 28th. CarMax will take the industry’s unit-sales decline in March in its next earnings report.

“We believe a number of macro factors, including a decline in consumer confidence, an omega-fuel increase in Govt cases, vehicle purchase prices, and incentives paid in the previous year, weigh in on our fourth-quarter unit sales performance,” the company said. Said. Notice the word “vehicle affordable”.

And stocks [KMX] 40% lower than peak in November 2021:

The term, “vehicle affordable”, carried prices across the industry, and consumers played for a while, confused by the inflationary mentality and buzzing with various incentives and money. -A portion of the trillions of dollars operated by the government and the central bank, such as referee money and the remaining PPP loans.

Now these types of confused buyers are not enough, there is more price resistance, and the prices of used vehicles are going down. This is taken from the used vehicle CPI today, which has declined by 3.8% from February to 0.25% in the previous month. But the index is still 35% absurd per year:

There is a problem with these cars now. As retail prices fall, consumers have it, and as they resist those absurd prices, the goods purchased at this absurd price will squeeze the gross profit per unit. CarMax is profitable and around the barrier, and it does not lead to an existential crisis.

But that is not the case for Vroom, Carvana and Shift, as they have already lost an arm and a leg each year, even during the heyday when the industry as a whole made huge profits. But now, they face more expensive inventory, falling retail prices, running costs and price resistance among potential customers. In addition, at the right time, the central bank will tighten financial conditions for the next few years, making it harder for financially strapped companies to finance.

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