Cash for Clunkers Helped Used Car Dealers?

• By the tickerspy.com Staff
• On 10:42 am EDT, Tuesday September 22, 2009

The government's 'cash for clunkers' auto subsidy program helped hoards of Americans get into new cars, but apparently many Americans are still buying used.

During the cash for clunkers program, anybody with an inefficient old beater could trade it for $4500 towards the purchase of a new car. Logic would suggest that slashing the prices on new cars would weigh on the sale of used ones. However, the government rebate program got people shopping, and used car dealer CarMax (NYSE: KMX - News) saw a spike in demand, helping the company earn a record quarterly profit.

CarMax earned $103 million or 46 cents a share in its second quarter ended August 31, more than seven times the $13 million profit in Q2 2008. Despite competition with the clunkers program, which didn't subsidize used cars, the gross profit per vehicle climbed by 13.4% to $2120 during the period. Used car sales, which represent 97% of CarMax's business according to TheStreet.com, were up by 9.6%.

CarMax is up by 8% on the report, and the rest of the Auto Dealer Stocks Index is trading higher across the board.

The news may bode well for fellow used car specialist America's Car-Mart (NASDAQ: CRMT - News), whose most recent earnings preceded the majority of the clunkers program. Car-Mart and Asbury Automotive (NYSE: ABG - News), which also has exposure to the used auto market, are among the laggards in today's car dealer rally.

AutoNation (NYSE: AN - News), the nation's largest dealership chain, declined to participate in the last three days of the cash for clunkers program to ensure that all the required paperwork could be completed on time. Today shares are trading higher by 2.5%.

Sonic Automotive (NYSE: SAH - News), Penske Automotive Group (NYSE: PAG - News), and Group 1 Automotive (NYSE: GPI - News) are also up by more than 2% in today's rally.

As of this writing, the Auto Dealer Stocks Index is one of 100 worst-performing tickerspy Indexes over the last month, up by less than 3%.

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