By on April 9, 2015


Though CarMax’s lending arm will press forward with its subprime lending test program, it won’t be a major player in the subprime game.

According to Automotive News, CarMax CFO Tom Reedy said as much during an earnings call with the media and analysts this month, stating that the company has three partners already doing well for CarMax in the subprime market; thus, no reason for CarMax Auto Finance to take a greater role in said market like it does in the prime lending market.

For now, the lending arm will continue loan originations at 5 percent of subprime vehicle sales for the duration of the testing period, which began January 2014. The arm originated $72.2 million of receivables under the program through the end of February 2015.

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5 Comments on “Reedy: CarMax Lending Arm Won’t Fully Play In Subprime Market...”

  • avatar

    CarMax has earned some kudos from me on this one. I have a CarMax car and I have to admit the company goes out of its way to make the buying process easy and streamlined–unlike the majority of Franchised dealerships. But no, I did not take a loan from CarMax to buy the car; I get better interest rates elsewhere. The fact that CarMax is not willing to ‘bet the bank’ on sub-prime loans tells me they intend to become and remain the best of the best in used car sales.

    • 0 avatar

      The fact that people assume that sub-prime automotive loans will play out anything like sub-prime mortgage loans is misinformed at best.

      Sub-prime automotive loans have a demonstrably lower risk since the asset at the core of the loan is both easier to repossess and typically suffers a much lower percentage of depreciation.

      Car Max’s position likely reflects that they are first and foremost a dealer, and that their lending operations are still secondary. It really has very little to do with the value of the subprime market itself.

      • 0 avatar

        You can’t say it won’t play out the same, either. While I agree with one part of your argument, it still does neither the lender nor the borrower any good financially to give loans to those who are too far away from liquidity. And if a car buyer suspects their car is going to be repoed, I know of some who purposely will trash the vehicle so the repo is still a complete loss to the lender.

        In other words, your argument is merely a matter of scale, not a matter of extent. Just as many institutions can be hurt by betting too much on sub-prime loans and the typical auto lender can’t afford to lose too many contracts. Housing loans price in the hundreds of thousands of dollars per unit sold; cars in the tens of thousands. However, on the average, twenty to fifty cars are sold for every one house, so if the same percentage of defaults comes across the lender’s door, that could mean the equivalent of 50 cars that have to be repoed and somehow re-sold (if possible) to recover the same amount of money as the one house. As I said, it’s a matter of scale.

  • avatar

    I once considered buying a vehicle from carmax but after reading the user reviews i dropped that idea. they seem to draw in naive and unsuspecting [mentally challenged] people to buy their bag of tricks. Son bought one without talking with me so he will have to learn the hard way. Carmax really ripped him a NEW ONE but i guess if he doesn’t want to check things out then he has to learn the hard way. Other sons are much wiser and know the difference between peanut butter and shit.Oh well, he will survive and hopefully become a wiser person…but i am not holding my breath on this kid. he charges on and seems to know all the answers even if he doesn’t.

    • 0 avatar

      Well, it does help to do a little analysis of the vehicle of choice, too. By no means have I been “ripped a new one” by them as far as I can tell so far.

      Used cars are used cars and I typically have no luck with used cars; I hate them because you’re almost always buying somebody else’s problems. On the other hand, if you do a little research, you might find a vehicle that’s better than expected in that rather than being a repo or a worn-out piece of junk, you get a nearly-new, truly lightly used model still under factory warranty (like my Fiat 500). I’m good for another two years plus on that factory warranty.

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