Carmax Plunges, Carvana Soars: Used Car Market Split

Carmax (NYSE:KMX) stock plunged to a 52-week low following a disastrous second quarter that saw revenue of $6.6 billion fall well short of the $7 billion expected by analysts. The company reported earnings of $0.64 per share versus the $1.05 forecast, marking the first year-over-year revenue decline in years and triggering a 21% stock drop that erased $1.5 billion in market value. The disappointing results prompted immediate analyst downgrades, with Wedbush specifically citing issues with vehicle sourcing and omnichannel execution.

The core of Carmax’s struggles lies in its retail used-car sales, which dropped 5.4% to 200,000 units, with comparable-store sales declining 6.3%. Wholesale units fell 2.2%, reducing total vehicle sales by 4.1% to 338,000 units. CEO Bill Nash noted that while gross profit per unit remained stable at $2,216, the company faces significant headwinds from high interest rates reducing affordability for its middle-income customer base. Compounding these challenges, Carmax Auto Finance income declined as loan-loss provisions increased due to higher delinquencies, despite used-car prices dropping 1.6% in wholesale markets.

While Carmax struggles, Carvana (NYSE:CVNA) continues its remarkable turnaround, trading just 10% below its all-time high of $413 per share hit in July and posting an 81% gain in 2025 alone. The company reported record Q2 sales of 143,000 units, representing a 41% increase, with revenue reaching $4.8 billion and adjusted EBITDA hitting $601 million for a 12.4% margin. Net income reached $308 million, with gross profit per unit significantly outperforming Carmax at $3,734.

Carvana’s online-only model has proven particularly effective at attracting younger buyers seeking fast purchases, with 95% of buyers researching digitally before purchase. The company’s strategic partnerships, including its arrangement with Ally Financial (NYSE:ALLY), provide financing heft, while its no minimum credit score policy expands its potential customer base. The 2024 acquisition of ADESA auto auction contributed 76,000 retail units in the second quarter, and the company’s growing electric and hybrid vehicle sales—now representing 9% of total sales, up from just 2% in 2023—reflects successful adaptation to market shifts.

The fundamental difference between these two automotive retailers lies in their operational approaches. Carmax, with over 240 physical stores, employs an omnichannel strategy that allows online browsing with in-store pickups but struggles with inventory sourcing and pricing efficiency. The company’s significant capital tied to physical lots and AI appraisal investments haven’t sufficiently offset these challenges, particularly as regional sales drops affect its middle-class customer base facing affordability pressures from high interest rates.

Conversely, Carvana’s digital-first model, featuring home delivery and seven-day returns, operates with lower overhead and benefits from in-sourced transport that reduces costs. However, the company recently acquired two car dealerships as it tests expanding into physical vehicle sales for faster fulfillment—a move that potentially introduces Carmax-like operational risks. Carvana specifically targets younger buyers with cars priced under $20,000 and easier financing options, positioning itself advantageously in a market where industry used-car sales rose just 1.7% in Q2 but demand increasingly favors digital platforms.

Despite Carvana’s current success, significant risks loom on the horizon. The stock’s extraordinary 7,690% surge since January 2023 has been driven largely by retail investor enthusiasm, creating vulnerability if that support fades. More fundamentally, Carvana’s customer base includes a large percentage of subprime borrowers, creating potential exposure if economic conditions worsen. A used-car demand drop from recession or higher rates could jeopardize the company’s ambitious 23% sales growth goal for 2025.

The critical test will come with third-quarter sales results—continued growth will validate Carvana’s current trajectory, while any miss could trigger losses similar to Carmax’s recent plunge. For now, Carvana remains stable with its online efficiency and cost controls providing some insulation from macroeconomic pressures, but the company’s expansion into physical dealerships and exposure to credit-sensitive buyers means it’s not immune to the challenges currently hammering its traditional competitor. The used car market’s dramatic split between these two retailers may ultimately prove temporary if broader economic conditions deteriorate further.