I have two favorite sections of The Wall Street Journal: the op-ed pages and a little column called "Ahead of the Tape." The former contains some of the best thinking going on in the U.S. on any given day. The latter is sometimes brilliant and sometimes brilliantly wrongheaded. Take yesterday, for instance, when the column suggested that CarMax
No sooner had the Journal written CarMax's obituary than the world's biggest used-car lot declared it was still alive and kicking (tires). CarMax posted first-quarter sales gains of 13% over first-quarter 2003, and it beat the Street's $0.30 a share earnings estimate by a full 10%.
But enough about CarMax's earnings. To be honest, I am no CarMax fan myself. Sure, the company sells great stuff at reasonable prices, but I would rather troll the lanes on eBay
What I really want to do is pick on the Journal some more. Its thesis was that CarMax does a great job of selling used cars and making money off of financing those sales. But, it adds, that success in those two endeavors is not enough to keep the company competitive with your local Ford
According to the Journal, mainstream dealers are happy to slash their profit margins to beat or match CarMax's prices, because they can make up the profits in parts and services. Since CarMax doesn't service cars, it lacks this revenue stream to fall back on. Therefore, if interest rate hikes or a flooded used-car market puts pressure on its sales- and financing-profit margins, the dealers will drive CarMax into the ground.
Which makes no sense for two reasons. First, new-car dealers sell mainly new cars. CarMax sells mainly used cars (where I live, it also sells new Toyotas
Fool contributor Rich Smith owns no shares in any of the companies mentioned in this article. And he really did buy his truck on eBay -- and have it shipped cross-country from Texas.