Christopher James Bottiglieri

Christopher James Bottiglieri asked about the 74% self-sourcing rate for used vehicles, comparing it to pre-COVID levels, and sought clarification on DFC's net losses as a percentage of managed receivables and the allowance for the end of the quarter, particularly in light of subprime market turmoil.

Answer

Bryan DeBoer, President and CEO, stated that pre-COVID self-sourcing was in the low 70th percentile, with private party procurement now at 8-10% compared to 3-4% pre-COVID, driven by the Driveway platform. Chuck Lietz, Senior Vice President of Driveway Finance, added that DFC's portfolio is performing well, with first payment defaults and delinquency rates down year-over-year. He expressed comfort with the current provision to cover losses, emphasizing the strength of their credit discipline despite a 33% increase in originations.

Christopher James Bottiglieri asked for clarification on the $40-45 million servicing fee, specifically regarding associated costs versus revenue. He also questioned CarMax's commitment to expanding into subprime lending given the weakening macro backdrop, asking if they would continue regardless or pause if conditions worsen.

Answer

President and CEO Bill Nash clarified that CarMax is expanding into the top half of Tier 2 credit, not 'deep subprime.' Jon Daniels, EVP of CarMax Auto Finance, highlighted the success of their securitization program, including the gain on sale and additional value from servicing fees and retained beneficial interest. Enrique Mayor-Mora, EVP and CFO, noted that servicing income would be reported in CAF contribution, with costs embedded in business operations.

Christopher James Bottiglieri inquired about the $40-$45 million servicing fee from the recent securitization, asking for clarification on associated costs. He also questioned CarMax's commitment to expanding into the subprime credit spectrum given the weakening macro backdrop, asking if the company would pull back if conditions worsen.

Answer

Jon Daniels, EVP of CarMax Auto Finance, clarified that the $40-$45 million includes servicing fees and retained beneficial interest, confirming that while there are costs, additional value will be generated. Enrique Mayor-Mora, EVP and CFO, added that servicing income will be reported in CAF contribution, with costs embedded in business expenses. Bill Nash, President and CEO, clarified that CarMax is expanding into the 'top half of Tier 2,' not 'deep subprime,' with Mr. Daniels emphasizing a prudent approach to profitability, pricing, provisioning, and servicing in this segment.