CarMax has announced cuts to hiring and stock buybacks in an effort to recoup from a devastating third quarter.
The company suffered an 86% profit decline in the last stretch of this year, thanks to wavering consumer interest in the used-vehicle market, high inflation and an ever increasing interest rate. In this, it joins its competitor Carvana, who is now facing concerns of bankruptcy in the latter half of 2023.
To save money, CarMax will freeze job hiring and cancel its plans to buy stocks from its shareholders. Earlier this year, the retailer noted it had also slowed down inventory purchases in response to the challenging market.
Used-car sellers performed extremely well during 2020 and 2021, as automakers were forced to cease production of new vehicles due to supply and labor shortages. Unable to find the products they wanted, consumers flocked to retailers such as CarMax and Carvana who saw record sales as a result. Thinking that the heightened interest would persist into 2022, both brands purchased large and costly inventories to sustain their projected demand. However, while recoveries were admittedly modest, automakers were slowly able to replenish new car inventories, as their dealers worked to offer generous discounts and services to attract buyers. Now with more options, would-be car owners abandoned the pre-owned market, leaving the industry with a vehicle surplus it was unable to sell or pay off.
That being said, while CarMax, and the rest of the used-car market, have struggled in the latter half of 2022, no sector of the auto industry is doing well. Dealership sentiments are at an all time low, while executives discuss the possibility of a recession in the first quarter of 2023. Although a normalization is likely to arrive soon, those within the business should see the last two years as a learning opportunity, so that they can navigate future calamities with ease.
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