CarMax to offer loan pre-qualifying online for all stores

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CarMax shoppers will be able to apply for financing using personal computers or mobile devices before visiting stores. Photo credit: BLOOMBERG

A test program that enables customers at 13 CarMax Inc. stores to pre-qualify for financing online prior to choosing a vehicle or visiting the store will expand to all CarMax stores “in the next couple of months,” the company’s top executive said.

Separately, the company said it was getting fewer credit applications from consumers with low credit scores.

CarMax CEO Bill Nash said going through the financing process prior to going to a CarMax dealership speeds up customers’ in-store buying process. Consumers can apply for financing using their computers or mobile devices, he said.

“We have expanded the pilot to 13 stores and we are encouraged by the customer response,” Nash told analysts and reporters during the quarterly earnings call last week for CarMax, the nation’s largest used-vehicle retailer.

“We are looking forward to rolling out the finished product to all our stores in the next couple of months and we will provide you an update next quarter,” Nash said.

Credit scores

CFO Tom Reedy said CarMax’s captive finance company, CarMax Auto Finance, continues to receive fewer credit applications from consumers with lower credit scores.

Sales to those consumers continue to be impacted by credit tightening by CarMax’s subprime lending partners, especially Santander Auto Finance, which announced this year that it was tightening it lending standards, he added.

Lenders who specialize in funding subprime loans are known in CarMax parlance as Tier 3 lending partners.

“Tier 3 sales mix was 9.5 percent of used unit sales, compared to 13.7 percent for the same period last year,” Reedy said. “This level of decline does not represent further tightening from what we experienced starting in the middle” of CarMax’s March 1 — May 31 fiscal first quarter, he said.

Prime lender

He also said the company is comfortable with CarMax Auto Finance having a reputation as a lender to consumers with prime credit and will not expand its subprime lending pilot program.

Reedy reminded callers that the purpose of the subprime test when it began in January 2014 was to learn more about customers that it typically handed off to its subprime lending partners.

“I think we are happier being thought of as a prime lender that has some activity in the tier 3 space,” Reedy said. “We are learning from it. We are learning how to originate. We are learning how to service. We are learning how to perform and we are building a track record in that space.

“But we haven’t determined that now is the time to go forward with anything greater.”

Profits fall

CarMax Inc.’s net earnings dropped 5.7 percent to $162.4 million in its second quarter, which ended Aug. 31, partially due to a $6.8 million hit related to the modification of equity awards held by its recently retired CEO, the company said. Former CarMax CEO Tom Folliard retired Aug. 31.

Revenue at the Richmond, Va., company rose 2.9 percent to $4 billion on higher retail unit sales.

Income at CarMax Auto Finance slid 2.4 percent to $96 million in the quarter.

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CarMax to offer loan pre-qualifying online for all stores