Enrique Mayor-Mora: And Rajat, just as a reminder, the first quarter, there’s some seasonality benefit too, right? So the first quarter tends to be our strongest from a GPU standpoint, just within tax time, so that happening as well?
Rajat Gupta: Right, right. Yes, that’s helpful. And just you mentioned earlier around the supply situation and the fact that there are several cars in the 0 to 10 year old that may not meet your reconditioning needs. As we look into later this year, into the next couple years, it looks like, you’re building more dependency on the greater than 6 year old cars to grow your business. Yes, how do you get around some of those quality constraints, reconditioning constraints for those cars, because the 0 to 4 year old supply is likely going to get worse before it gets better. So how do we manage through that to return to growth in the business in the next couple of years? Thanks.
Jon Daniels: Yes. Well what I would remind you Rajat is if you go back when we had the last big bubble go through on late model cars, back in the financial crisis, the new car sales rate in 2008, 2009, 2010, 2011, it bounced around anywhere between $10.5 million and a little over $13 million. If you look at the period from like 2020, 2021, 2022, and even the estimate for this year, you’re talking about 2014 to over 2015. So, my point in pointing that out is, we’ve been through far worse situations than what we’re seeing now as far as a bubble of 0 to 4 or 0 to 6 year old cars that we’re going to be facing. And again, we’re in a better position than we were back then because our self-sufficiency is so high and we’re getting those cars directly from consumers and other sources. So we feel very good about our ability to navigate the future, whether it’s consumers wanting 0 to 6 year old cars or whether it’s consumers wanting to buy something a little bit older.
Rajat Gupta: Understood, that’s helpful color. Thank you.
Bill Nash: Thank you.
Operator: Our next question comes from Daniel Imbro with Stephens. Your line is open.
Daniel Imbro: Yes. Hey, good morning guys.
Bill Nash: Good morning.
Daniel Imbro: I wanted to ask a followup on CAF, and maybe it ties into the affordability discussion, but the weighted average rate here was flat, I think sequentially at 11.1% despite maybe rising benchmark rates and your recent trend of passing through price. So, I guess, are we seeing customers push back on rates? Should we maybe take that as a sign customers have reached their limit on affordability and are you guys at maybe the end of your ability to pass through more APR at CAF despite the rising kind of rate environment? Just curious, why that’s sequentially flat line from here?
Enrique Mayor-Mora: Sure. Yes, great question Daniel. A couple of things that are subtle in there to point out. First, the flat quarter-over-quarter also realize we did some tightening in there. If you pull back in the Tier 3 space, we pick pockets in the Tier 1 space, that’s going to offset any sequential growth in the APR. I can tell you that we did continue to test and raise APRs within the quarter, but bear in mind, I think one of the key things for us is, we’re not looking to maximize finance margin. When we do our testing and pass this along to the customer, we’re taking into accounts, are they able to purchase the car? Are they going to end up paying off with someone else where we wouldn’t gain any finance income? So we very carefully test different rates and then adjust those rates in smaller pockets to optimize the overall CarMax value.
So I think that’s why you’re seeing the sequential piece. But certainly, obviously there are payment pressures as Bill mentioned, so we continue to be very careful with that. But that’s why you’re seeing sequential quarter-over-quarter flat. It’s — the tightening is offsetting it.
Daniel Imbro: So to followup that question, your strategy would more be to maximize units sold, not maximize margins at CAF, did we hear that right?
Jon Daniels: No. I would say we contemplate that in the decision. We look at units sold, we look at amount of finance margin that CAF captures and also contemplate, remember they can pay off in three days. So we could sell the car, but CAF could lose the financing if they choose to go down the street to their bank or their credit union. So we put all that together to optimize for CarMax in total, not just maximize one dimension or the other. That’s CarMax’s total profitability, right? How we think about it. That’s right.
Daniel Imbro: Perfect. Thanks for the color. I appreciate it.
Operator: Our next question will come from David Whiston with Morningstar. Your line is open.
David Whiston: Thanks. Good morning. Just sticking with those other financing channels you just mentioned Enrique, I’m just curious why this year other is gaining a lot at the expense of Tier 2? Are there just more cash only buyers in the market now or is there a problem with Tier 2 consumers willing to buy or are other lenders just taking the opportunity from you?
Enrique Mayor-Mora: Sure. Yes, David. I think there’s a couple things going on there. First I think what you really do see is the affordability is definitely a challenge in the bottom portion of the credit spectrum, kind of that mid-tier to the subprime space. We see great demand across the credit spectrum, but ultimately when they see the monthly payment it’s the higher end guys that are able to follow through with the purchase. So that’s going to benefit both cash and kind of the outside financing population. You did see some pullback, as I mentioned the back half of last year in the Tier 2 space, so there’s also some tightening that’s hurting the penetration there just around it out in Tier 3, they did benefit from that tightening, right.
