CarMax Bets on Buyers with Lower Credit Scores

Dow Jones11-03 22:16

CarMax, seeking to grow after years of inertia, is aiming to lower car prices by cutting costs while earning more from less creditworthy buyers.

The nation's largest used-car retailer laid out its turnaround strategy under new Chief Executive Keith Barr. CarMax's sales have stagnated since 2021, and its stock price has dropped more than 60% in that period.

Part of its growth strategy: growing the share of "Tier-2" customers, or people below prime but above "subprime" credit ratings, that it finances in-house.

CarMax said this strategy will dent profits in the short term because it will have to book higher reserves for loan losses, but higher-interest-rate loans will be more profitable in the long run.

The company is also doubling down on what it calls hybrid sales: a mix of in-person shopping at brick-and-mortar stores and fully online sales.

The company's main competitor, Carvana, has doubled its business in the last two years, emphasizing a primarily digital model.

CarMax's stock fell over 4% in premarket trading.

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