Used cars have become unaffordable

New York
CNN business

High prices and rising interest rates are putting used cars out of reach for a growing number of car buyers.

It’s bad news for CarMax, the nation’s largest used car dealer. CarMax reported Thursday that its profits fell 54% as the number of cars sold in the quarter fell 6.4% compared to a year ago.

The company blamed “vehicle affordability challenges” due to widespread inflationary pressures, as well as rising interest rates and low consumer confidence.

While higher prices boosted the company’s overall revenue, the results came in well below the forecasts of analysts polled by Refinitiv. This raised alarm bells for investors. Shares of CarMax ( KMX ) fell more than 20% Thursday, while shares of other auto retailers were also hammered. Shares of used-car rival Carvana ( CVNA ) fell about 18% and AutoNation ( AN ), the nation’s largest seller of new cars, fell 11%. Shares of many automakers were also lower, including General Motors ( GM ), Ford ( F ), Stellantis and Tesla (TSLA) included.

Auto prices have been rising steadily over the past two years as a shortage of parts, particularly computer chips, has limited supply in the face of strong consumer demand. These higher prices have been a major factor in overall inflationary pressures, as about 40% of US households buy a car each year.

Efforts to lower prices have prompted the Federal Reserve to raise interest rates at a historic pace in recent months as the central bank tries to ease consumer demand and slow the economy.

Used car prices — although down 2% in August from their highs in January — were still up 48% from August 2019, according to the Consumer Price Index, a key measure of inflation. New car prices hit a record high in August, up 30% over the past three years.

CarMax’s average selling price per vehicle was $28,657 in the three months ending in August, up 9.6% from a year earlier, but down 1% from the previous quarter.