Auto retailer CarMax Inc. said today it is considering shifting lending from its financing arm to outside lenders in order to reduce the impact of the credit crunch on the company's profits.

The Goochland County-based company's $1.4 billion warehouse credit facility would last through February under CarMax Auto Finance's current loan practices, Joe Kunkel, senior vice president for marketing and strategy, said at the Wachovia Consumer Growth Conference in New York.

But if the credit market doesn't start to loosen up, "instead of CAF being the lender of first resort, CAF maybe will become the lender of last resort," Kunkel said, adding that the company's higher cost of credit has offset any gains from interest rate reductions by the Federal Reserve.

"We have other lenders that have been working with us that would like to get more of that CAF business," Kunkel said in a webcast of the conference. "We might be willing to take a margin hit where we wouldn't actually place those loans in order to get the sales out of it."

Under that scenario, CarMax Auto Finance would be used for the set of loans in which it is "the only person that will successfully lend to that group," Kunkel said.

CarMax shares fell 67 cents, or 5.5 percent, to $9.86 in morning trading.

A weak economy, high fuel prices and the tight credit markets have sent auto sales sharply lower this year.

Earlier this month, CarMax said it was laying off more than 600 employees to try to cut costs.

The company reported last month that second-quarter earnings plunged 78 percent due to a weak economy, high gasoline prices and losses in its financing arm. CarMax Auto Finance reported a pretax loss of $7.1 million compared with income of $33.4 million in the same period last year.

The results for the finance arm were reduced by $28.2 million for adjustments related to loans that originated in prior fiscal years, mainly projected losses on defaulted loans.

CarMax also said it saw a 51 percent decline in its third-party finance fees, partially affected by a tightening in credit availability from some nonprime finance providers and a decline in the credit profile of its average customer.

-- The Associated Press