America’s Car-Mart Inc. CEO Jeff Williams has been in the buy-here, pay-here car market long enough to know it is never easy.
A few years ago, Williams and other company leaders decided to upgrade America’s Car-Mart’s online platform to serve customers more efficiently. It would be expensive, installing and integrating software upgrades across 150-plus dealerships in 12 states.
The project would have been challenging enough in the best of times, but America’s Car-Mart committed to it just as the COVID-19 pandemic hit and walloped the company’s bottom line. Still, the company powered through some short-term profit pain and is on the cusp of completing the project. Williams expects the company’s loan origination system (LOS) to be fully completed along with the other upgrades by the end of the fiscal year.
Williams said he is glad the company stuck to the plan despite the difficult economic times. America’s Car-Mart spent $22 million on investments and improvements in fiscal 2023.
“We are coming through the other side of this mess in better shape than we were pre-COVID,” Williams said. “We are very proud of the fact that we made these investments and we stuck with them the last two, three, four years, and now that things are getting tougher, we have a lot of hard work behind us.”
The company just completed its fiscal 2023, reporting income of $20.4 million, a sharp drop from $95 million in 2022. Annual revenue increased from $1.08 billion to $1.4 billion, but higher costs thumped its profits.
But the company’s customer count continued to increase, surpassing 100,000 total. It was 75,609 in 2018.
America’s Car-Mart has reported five consecutive quarters of declining profits. But Stephens Inc. analyst Vincent Caintic said the company’s performance is much better than it looks on paper.
“Car-Mart is doing a lot of good things, so that when we are past all this they are setting themselves up to serve the customer better and more efficiently,” said Caintic, a research analyst in consumer finance and a managing director at Stephens.
‘A Big Leg Up’
The centerpiece of America’s Car-Mart upgrades is the LOS. It allows potential customers to get preapproved for credit and loan terms before showing up on a dealership lot.
Both sides of the deal benefit: Customers don’t have to waste time filling out applications in person, and Car-Mart salespeople get more time to work with customers to find the right car.
“That can all get done online from the comfort of your own home,” Williams said. “Then you go to the dealership and do the fun part of the transaction, which is the test drive and kicking of the tires. It is extremely important that we jumped in prior to March 2020 on how to work out the online application process.
“Consumers in our market generally have some credit challenges and some credit dings, so for them to be able to do that unpleasant part of the transaction from home and get that behind them, it gives us a big leg up on the competition.”
The LOS also helps by providing the company with data to analyze. For example, Williams said, the digital team could figure out why a customer didn’t buy from the company and then adjust the financial offering.
Enterprise resource planning software will also help America’s Car-Mart tie everything together digitally.
“It is huge from a back-office standpoint,” Williams said. “We have not had data links. It allows us to maximize this massive amount of data we have from 43 years of doing business.”
Caintic said the digital transformation should prove to be a smart investment. “Without these investments Car-Mart would be in a worse situation than they are now,” he said.
Triple-Header
The pandemic caused a sharp rise in the cost of America’s Car-Mart acquiring vehicles on the used-car market, a situation that hasn’t improved much since the abatement of the pandemic.
And inflation has pinched the company from the other end because its customers, who are generally not affluent or strong credit scorers, have less money to spend on a car. Caintic said there is a third pinch on the company: rising interest rates make the financial terms less profitable.
“[I]t is a tough environment right now for auto lending and auto sales particularly catering toward the lower-end sub-prime credit consumer,” Caintic said. “Car-Mart has been having some recent issues with credit deterioration as well as difficulty getting affordable cars to sell to consumers. In order to sell the car that is affordable for the consumer, Car-Mart has had to do things to make affordability easier. The macro is difficult for Car-Mart at the moment. They are actually getting squeezed from three ends. You’re selling a more expensive car with a more expensive loan to a customer who is making less money.”
It could be worse. Two America’s Car-Mart competitors, American Car Center of Memphis and U.S. Auto Sales of Lawrenceville, Georgia, stopped operations this year.
Williams said America’s Car-Mart has a strong enough balance sheet to take advantage of any expansion or acquisition opportunity.
“We had to make our model better,” Williams said. “We are probably going to see some tougher times, and we will have to work through this cycle. On the other end of this cycle we are going to be in fantastic shape.
“To me, if we hadn’t made some of these investments, we wouldn’t be in the position we are in today to really get out there and dominate.”
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