The prices of used vehicles will remain higher; has ‘offsetting effects’ on Car-Mart, analysts say
Used vehicle prices are expected to stay higher and continue to rise as more stimulus funds are released and new vehicle production is limited, said Jeff Williams, president and CEO of America’s Car -Mart Inc. Higher prices could have “offsetting effects” on Rogers Buy Here, Pay Here Used Car Dealer, analysts said.
During the third quarter earnings call, Williams said that with recent shortages of microchips, there is a continuing shortage of good, affordable vehicles. In the third quarter, the average selling price of Car-Mart vehicles increased 16.5% to $ 13,688 from $ 11,750 in the same period last year.
“We expect prices to remain high for the foreseeable future, although increases, as we have seen over the past 12 months, are not expected,” said Williams. “We are seeing and seeing some stabilization in prices, but we expect to see prices increase in the future, especially if we integrate our new service contracts. There will be increases of a few percentage points in selling prices just by rolling out the new service contracts. “
In mid-February, the Manheim used vehicle value index rose 17.4% to 168.4% compared to the same month in 2020. Used vehicle prices rose 3.3% % during the first half of February, compared to January. Prices rose at an accelerating pace in the first two weeks of February, according to the index report. Vehicle prices are expected to continue to rise in the days and weeks to come. Prices typically increase each spring, but increases typically begin in March and coincide with income tax refunds.
Williams said delays in tax refunds this year will be more negative compared to stimulus payments in January. But in the coming months, more stimulus funds and income tax refunds are expected. Williams expects sales volumes to be strong and vehicle inventories to be good heading into the fourth quarter. Car-Mart’s fourth quarter of fiscal 2021 ends April 30.
During three quarters, the company profits increased 44.1% to $ 60.61 million, compared to $ 42.05 million in the same period last year. Revenue increased 16.5% to $ 639.53 million, from $ 548.92 million. On February 24, shares of Car-Mart (NASDAQ: CRMT) were trading at a high of $ 143.20. On Wednesday (March 3), the stock was trading at $ 138.75, up 96 cents, or 0.7%. Over the past 52 weeks, the stock has fluctuated between $ 143.20 and $ 35.18.
In a third quarter earnings report, equity analysts Kyle Joseph, John Hecht, Ryan Carr and equity partner Lance Jessurun, all of Jefferies, noted Car-Mart’s transition from a collection firm to a more efficient sales company in terms of collections. This should lead to larger investments in buying, sales and marketing and lead to more customers, analysts said. The average dealership serves around 570 customers, but Car-Mart believes that each can grow to serve 1,000 customers. In the third quarter, active loans increased 6.9% to 85,807 from 80,250 in the same period last year. In December, Car-Mart opened its 151st dealer in Edmond, Okla. It was the third dealership to open in fiscal 2021.
Car-Mart’s vehicle sales increased 5.6% to 14,053 in the third quarter, compared to the same period last year. The length of the company’s contract continues to increase along with used car prices. The average duration rose to 35 months, compared to 30.8 months at the same period last year.
“We believe (Car-Mart) is well positioned competitively, as indirect lenders have tightened and ‘mom-and-pop’ competitors face similar inventory supply issues / higher used car prices, ”analysts said. The short-term mixed effects on Car-Mart include high used car prices, “which are offsetting the business, and a tighter credit environment which should support sales.”
Auto loan performance declined in January but improved from a year ago and was much better than it would be in a typical recession, according to the Manheim report. Loan arrears and defaults were low due to stimulus funds and loan arrangements. In January, 1.4% of auto loans were severely past due and were up slightly from December 2020. 60-day delinquencies have increased in the past six months, but are down 12% from January 2020 The above-normal loan performance and strength in vehicle values have helped access to auto credit increase in recent months, according to the report. In the third quarter of Car-Mart, net write-offs fell to 4.9%, from 5.9% in the same period last year. Accounts overdue for more than 30 days fell to 2.8% from 3.6%.
Manheim’s Dealertrack auto credit index showed credit easing in the last four months of 2020, but credit tightened in January and remains tighter than a year ago.
The University of Michigan consumer sentiment index fell 24% to 76.8 in February, from 101 in the same month last year. The index fell 2.8% from 79 in January. Indices about existing economic conditions and future expectations have also declined. Vehicle purchasing conditions have fallen to the lowest level since 2008, the report said. Home buying conditions have also fallen.