Based on the biggest public auto retailers’ performance, the industry’s year has so far proved uneven, but on the front end of the fourth quarter there’s reason for optimism, save for one problem area, according to Kerrigan Advisers analysts.
The sell-side adviser, whose Kerrigan Index report follows the seven biggest U.S. sector players’ stock prices and market capitalization, says the third-quarter performances of all but one were essentially flat. The outlier illustrates the industry’s challenge as the year comes to a close.
The market cap of CarMax, the one of the seven companies that conducts only used-vehicle sales, plummeted about 33% in the quarter, its stock down 27% for a 47% year-to-date decline, revealing vulnerabilities in the used market, Kerrigan reports.
The firm points to falling demand, increasing used-vehicle interest rates, and used price declines from pandemic-era highs. It said CarMax’s sharp increase in loan-loss provisions signifies declining consumer credit conditions, a trend also reflected in the moves of two subprime lenders. Automotive Credit Corp. stopped offering new loans in August, Kerrigan says, while the following month Tricolor Holdings, which also sells used autos, filed for bankruptcy.
The used-sector developments could mean greater auto lender and regulator cautions, according to the report, which points out that Trump administration immigration policy impacted Tricolor’s focus on immigrant consumers.
Despite those challenges, the larger auto retail industry is looking up due to a clearer picture of U.S. trade tariff policy than when the year started, along with easing consumer finance pressure with the recent Federal Reserve interest rate cut.
“… dealers are well-positioned to capitalize on improving market dynamics in the quarters ahead,” the report says.
