CarMax, the nation’s largest used-vehicle retailer and Carvana, a used-vehicle retailer known for its giant car-vending machines, each generated strong unit sales and revenues and significantly increased the number of vehicles they bought from consumers.

But each wrestled with managing increased demand from consumers, in their most recent respective quarters.

First, Carvana

In its third quarter that ended Sept. 30, Carvana significantly increased its retail sales and more than doubled its revenues compared to the same quarter last year.

But, the online used-vehicle retailer realized a net loss of $68 million in the quarter compared to an $18 million net loss in its third quarter of 2020. That also compares to its first ever profit of $45 million in the second quarter of this year.

Carvana chief executive officer Ernie Garcia said the company in its fourth quarter was impacted by “significant operational constraints,” in its system created by its overall growth and an “explosive” increase in the volume of vehicles it bought from customers.

Getting behind at its inspection centers, delays in calling customers back and having to reschedule vehicle deliveries because of strains on its logistical network were among the constraints on the business, he said during the company’s Nov. 4 earnings call.

Over time, technology will automate many of those processes, but the more immediate solution is getting more people, Garcia said.  The company “is scaling up,” he added.

“What we generally mean is, that kind of amount of demand that we’re seeing is causing those service levels to be below where we historically have had them and therefore, fewer customers would elect to go through the process with us,” he said.

Easing the pressure

To help ease pressure on its system in the quarter, Carvana managed retail sales volume by reducing the number of vehicles shown to consumers in search results. That limited the benefits of higher immediate available inventory on retail units sold, Garcia said.

In the quarter that ended Sept. 30, Carvana increased its retail sales 74% to 111,949 units and its revenue climbed 125% to $3.48 billion, when compared to the same quarter last year.

During the time period, Carvana’s total gross profit per retail and wholesale unit combined, was $4,672, up $616 compared to the third quarter of 2020.

But gross profit per retail unit of $1,769, was down $88 compared to the year-ago period, primarily driven by higher reconditioning costs and higher wholesale prices acquisition prices, and partially offset by a higher customer-sourced ratio, the company said.

On the growth

Carvana chief financial officer Mark Jenkins, who was also on the call, said the company remains on track to open eight new inventory reconditioning centers by the end of 2022 “in preparation for future growth.”

Garcia said it was too early to give details about Carvana’s recently announced partnerships with Hertz and with Root Inc.,  the parent of Root insurance company.

He said both companies have assets that would enhance Carvana’s customer experience and  be difficult for Carvana to replicate on its own.

Now, CarMax

CarMax, in its fiscal second quarter that ended Aug. 31, increased its combined retail and wholesale unit sales 19.9% to 419,895 compared to the year-ago time period. It also grew its net revenues 48.7% to a record $8 billion, the company said.

Its retail unit sales increased 6.7% to 231,797 in the quarter when compared to the year-ago time period and its comparable store unit sales grew 6.2%.

But, CarMax’s net earnings slid 3.9% to $285.3 million in the quarter.

CEO Bill Nash asked call participants to keep in mind that the 2020 second fiscal quarter is when CarMax  undertook many cost-savings measures as a result of the pandemic.

However, the company dealt with “several headwinds” in the fiscal quarter, he said.

Headwinds

CarMax’s inventory was down about 30% from where it needs to be and the company was understaffed across the board in the quarter, Nash said.

“In some cases, we just weren’t able to get back with customers, which is never a good thing and so we’re working on that,” Nash said, during the call.

He also said year-over-year used-vehicle acquisition prices were up $6,000 which might have pushed some consumers out of the market.

Despite those “headwinds,” CarMax retailed 231,797 units, in the fiscal quarter, a 6.7% increase compared to its year-ago fiscal quarter and its comparable store retail unit sales rose 6.2% in the same time period.

“While it remains below or at targeted levels, we are on pace to grow our salable inventory during the balance of the year,” he said.

Omni-channel

The company credited its retail sales increase to strong used-vehicle demand and “solid execution” supported by its omni-channel sales platform that enables consumers to conduct some or all of the vehicle purchase online.

Nash said most customers don’t want to shop for a vehicle solely in-store or digitally and credited CarMax’s omni-channel platform and online instant appraisal tool with helping drive the company’s performance.

Approximately 55% of retail unit sales in the fiscal second quarter were omni, up 49% from last year’s fiscal second quarter, he said. An omni sale occurs when the customer completes at least one major sale transaction remotely.

“Currently, a little more than 50% of our customers have access to a complete end-to-end, unaided online experience,” he said. “We are on track to bring this capability to all of our retail consumers by the end of the fiscal year.”

CarMax said its bought 364,263 vehicles from customers in the quarter, up 59%  compared to its fiscal second quarter in 2020. Approximately 188,000 vehicles bought in the quarter were through CarMax’s online instant appraisal and cash offer tool.