CarMax Revs Up

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New- and used-car retailer CarMax (NYSE: KMX) reported banner year-end sales last week, built on 6% growth in comparable sales. Sales by unit increased 15.6% overall. Although the used-car/new-car sales ratio rose slightly, the company continued to sell roughly nine used cars for every one new car sold. Used-car unit sales grew 17.9% while new-car unit sales fell 3.2% (probably partly as a result of CarMax closing four of its new-car dealerships).

The average sales price of new cars sold by CarMax inched up 2%, while used-car prices rose just under 1%. But with cheaper used cars making up the bulk of sales, and fewer higher-priced new cars being sold, the average retail price of all cars sold rose only about 0.2%.

That number doesn't look impressive at first glance, but consider that for the past three years, U.S. auto manufacturers Ford (NYSE: F), General Motors (NYSE: GM), and DaimlerChrysler (NYSE: DCX) have been offering American car buyers very attractive credit terms. And while they have not matched their U.S. counterparts' discounts dollar for dollar, Japan's Toyota (NYSE: TM), Nissan (Nasdaq: NSANY), and Honda (NYSE: HMC) have increased incentives as well.

With new cars available at as little as 0% financing, and used-car financing rates closer to 4%, there is a very real possibility that monthly payments on a new car may not be significantly more than -- and for longer-term loans, may even be less than -- monthly payments on a used version of that car.

Thus, the financing deck is stacked against used-car specialists like CarMax, as new-car dealers try to poach their customers. That CarMax was able to raise its average used-car prices at all in this interest rate environment demonstrates the attractiveness of its "no haggle" pricing strategy, and the strength of its reputation as a vendor of quality used vehicles.

As for how profitable a year CarMax had, we will have to wait until March 30 when it releases its earnings numbers. The company estimates that earnings per share for the year will fall somewhere between $1.08 and $1.11, representing a roughly 14% increase.

Are you looking to buy a new ride? Get advice from other Fools on the Buying and Maintaining a Car discussion board.

Motley Fool contributor Rich Smith owns no shares in the companies mentioned in this article.