Things have gotten so bad out there that even a used-car retailer is handing out pink slips. CarMax (NYSE:KMX) announced layoffs yesterday, reducing its service operations workforce by more than 600 hires.
Remember when a used-car dealer was supposed to weather the storm of a softening economy? Potential new-car buyers would instead opt for cheaper resale rides. Unfortunately, that theory was shot to bits last week, when CarMax posted horrendous quarterly results. Revenue fell by 13% and profits shrank by nearly 80%.
The company has relinquished market share in the used-car market, no doubt to more value-minded chains like America's Car-Mart (NYSE:CRMT). Copart (NASDAQ:CPRT) is one of the few industry players holding up well, perhaps because it finds new markets for salvage cars, like scrap metal or overseas sales.
Does this mean we're holding onto our cars longer? Not exactly. Auto-parts specialist AutoZone (NYSE:AZO) also missed Wall Street's earnings expectations last week. The blown gasket of a theory there once assumed that folks stuck with aging cars would spend more on maintaining their vehicles.
Clearly this isn't a good time for the automotive industry. Big-ticket purchases, even on the discounted used end, are faltering. That throws a wrench into the system of a company like Sirius XM Radio (NASDAQ:SIRI), which has been hoping that weakness in new-car sales would spur consumers buying newer-model used cars to activate their satellite-receiver paperweights.
Sirius is considering options like offering up a sliver of its content to inactive receivers as a way to court new subscribers, but it doesn't help the company if new and used cars are collecting dewdrops on the dealer lot.
The lull won't last forever, of course. Consumers will eventually flock to upgrading their wheels, with new or used cars. The longer the wait, the greater the pent-up demand. Unfortunately, judging by CarMax's move this week to scale back its workforce, it seems that even the used-car giant doesn't see any near-term relief.
Pull into reverse and check out these recent road-tested articles:
- CarMax is coming off a very challenging quarter.
- Sirius CEO Mel Karmazin discussed plans for dormant receivers last month.
- The global economic downturn may be just getting started.
