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CarMax Smacked

CarMax Inc.   sales and earnings took a pasting in the 2Q of 2008 from a double whammy: Consumers purchased 7 percent fewer used cars, and the price of those cars dropped 6 percent, combining to create a 13 percent fall in total sales. Earnings fell by roughly 75 percent to $14 million.

"The slowdown in the economy and reductions in consumer spending power resulting from higher gasoline and food costs continued to create a difficult environment for our business," said CEO Tom Folliard . Despite the current business environment, Folliard added, "the solid execution by our store teams resulted in a conversion rate that was only marginally below the rate in the prior year's second quarter."

A big part of CarMax's woes were financial. CarMax Auto Finance reported a pretax loss of $47.1 million compared to income of $33.4 million in the same quarter last year – a $40 million swing. Results included $28.2 million for loan adjustments, including higher loan-loss rate assumptions. 

The company was adversely affected by the disruption to credit markets during the quarter. The gain percentage on the origination and sale of car loans decreased to 1.8 percent, down from 4.0 percent in the same quarter last year. The company incurred higher funding costs that it could not offset through higher consumer rates, and other factors. More .