Market Overview

Auto Industry Shifting From New To Used? CarMax Consistently Outperforms During Car Stock Weakness

Auto Industry Shifting From New To Used? CarMax Consistently Outperforms During Car Stock Weakness

New car sales have no doubt been on a hot streak. Coming off a record year in 2015, and what looked to be shaping up as another historic industry, there are now threats that the trend has since reversed.

A combination of higher cash incentives and 0 percent financing to entice consumers have cut into dealer profits and pushed down vehicle values according to a report Fitch Ratings.

CarMax Positioned Well For The Trend Reversal

According to a new report from Deutsche Bank, used cars may be making a comeback. There appears to be a structural shift in affordability of used cars versus new cars. As a result, used car retailer CarMax, Inc (NYSE: KMX) appears ripe to benefit from this changing trend.

"A number of positives for the new vehicle market are likely to become less favorable. Used vehicles values are falling…we also believe that KMX should be a net winner," said a Deutsche Bank analyst.

Related Link: Goldman Remains Cautious On Auto Sector, Says "The Next Leg Is Down"

Used Vs. New

Experian has also noted that new car buyers are beginning to move to used.

"We have begun to notice significant acceleration in Used vehicle sales comps from franchised retailers. KMX also saw 8 percent same store growth in their non-suprime units in Q2 vs. total same store growth of 3 percent. This phenomenon is still in its infancy," said the credit rating agency.

CarMax is in a prime position to profit from this shift in car industry trends. As a result, Deutsche Bank has upgraded the company from Hold to Buy. The price target has also been upped to $68 from $66.

At last check, CarMax was up 2.94 percent at $51.52.

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