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CarMax says inflation taking toll on car demand; auto stocks fall

By Priyamvada C

(Reuters) -Used-car retailer CarMax Inc said on Thursday that an uncertain economic environment was starting to take a toll on vehicle demand, sending ripples through the auto sector, which has largely dodged a significant hit from inflation this year.

CarMax shares tumbled 22% to $66.63 to hit a more than two-year low, after the company reported second-quarter results below analysts' estimates and underscored the impact of inflation and rising interest rates on car sales.

"Obviously, consumers are having to make decisions ... I just think they are prioritizing their spend a little differently," Chief Executive Officer William Nash told analysts, adding that softness in used-car sales continued in September.

Strong demand for personal transport amid inventory shortages has allowed automakers and retailers to pass on higher costs to customers, largely protecting profitability this year.

But analysts have been warning that the industry will soon feel the pinch of rising interest rates and weakening consumer confidence as inventory shortages send car prices to record highs.

Auto research firm Cox Automotive, which tracks U.S. vehicle market trends, cut its forecast for new and used vehicle sales on Wednesday, citing worsening consumer sentiment, while Moody's changed its outlook for the global Automotive industry to "negative" from "stable" earlier in the day.

The outlook change is driven by a weakening macroeconomic environment and concerns over affordability, Moody's analysts wrote in a note.

CarMax's dour comments and disappointing results heaped more pain on the auto sector, which has been reeling from a broader market selloff.

Shares of General Motors Co and Ford Motor Co were down about 5% in morning trade, while those of auto dealers AutoNation Inc, Lithia & Driveway and Group 1 Automotive fell between 7% and 10%.

(Reporting by Priyamvada C in Bengaluru and additional reporting by Joseph White in Detroit; Editing by Anil D'Silva)