![]() So despite some headwinds, used car dealers continue benefiting from inventory shortages in the new car market. While rising interest rates are broadly dampening auto demand, supply shortages are helping offset any cooling on the demand side. As we've previously discussed, the used car industry has benefited from tight supply amid the pandemic's impact on production. The ongoing UAW strike could create positive catalysts for used car dealerships as new car inventory remains constrained. Overall, political and economic dynamics suggest this labor dispute could drag on. With both sides dug in, an extended strike seems likely. Automakers likely have the balance sheet capacity to meet some wage demands despite their slim margins, but prolonging negotiations may be their strategy to avoid fully capitulating. While the Fed's aggressive rate hikes aim to curb inflation going forward, they do not address legacy inflationary impacts, in our opinion. Despite the 40% proposed wage increase seeming high to investors, support for workers may grow given the widening geographic income inequality in the US, which was exacerbated by high inflation in 2022. With Biden publicly supporting auto workers on the picket line on September 26th, we believe the UAW strike could persist longer than expected as it takes on greater political significance ahead of the 2024 presidential election. While earnings results are uncertain, we see upside potential in Carmax based on broader industry trends. The strike has led to lower new car inventory, which could drive more consumers to the used car market and benefit Carmax. We believe the used car dealership industry will see continued tailwinds, as the UAW strike has persisted. PeopleImages/iStock via Getty Images We Bought Ahead of Earnings Reportīefore the release of its second-quarter earnings report tomorrow, we are making a substantial investment in CarMax ( NYSE: KMX) shares as we see several catalysts ahead.
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