CarMax's Wobbly Wheel

Used-car salesman CarMax (NYSE: KMX  ) was driving to work the other day and, unable to swerve to avoid a pothole in the new-car discount superhighway, it hit the hole dead-on. Bam! The impact was jarring, and so CarMax, with a muttered curse, pulled over to the side of the road, crawled underneath the chassis and took a gander. "Just as I expected," groused CarMax. "The comps fell off, and now the entire earnings alignment is skewed!"

Basically, that's the story CarMax told recently. The record sales incentives being offered by auto manufacturers Ford (NYSE: F  ) , GM (NYSE: GM  ) , and DaimlerChrysler (NYSE: DCX  ) , plus lesser incentives on offer at Toyota (NYSE: TM  ) , Nissan (Nasdaq: NSANY  ) , and Honda (NYSE: HMC  ) , have eroded CarMax's customer base and created an obstacle that CarMax could not elude this quarter. The damage, while not severe, is going to require some fixing: Comparable sales are expected to be as bad as or worse than the company's previous worst estimates (a decline of 5% to 7% is predicted). As a result, earnings will come in, at best, at the very bottom of CarMax's old prediction (now calling for $0.27 to $0.30 for the second quarter).

That's bad news, to be sure. But in all honesty, a Fool could have seen this pothole in the road --even in the dark and wearing sunglasses (if you'll forgive the Blues Brothers reference). With the Wall Street Journal recently reporting that sales incentives have reached an all-time high, averaging $5,000 on a new car, used car sales were bound to suffer (still, as I pointed out here, this trend has not dampened the insider buying at CarMax).

The thing I find disturbing in CarMax's earnings warning, though, isn't the warning itself, or even the confirmation of the decline in used car sales "industry-wide." It's the company's decision to drag out the tired old excuse of blaming the weather for lagging sales. I'm not saying Tropical Storm Bonnie and Hurricane Charley didn't depress sales, mind you, but we all know that isn't the real problem. Would it really hurt CarMax to just play it straight with its investors? Tell them straight out: "The automakers are mortgaging their own futures with sales incentives, and so long as they keep it up, our sales of used cars are going to be weak. When they come to their senses, our sales will pick up again."

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