Finance and Economic

CarMax Inc. said Wednesday it is laying off more than 600 employees, or about 4% of its total work force, as the auto retailer tries to cut costs due to a decline in car and truck sales.

The Richmond, Va.-based company said the reductions are in its service operations departments at a majority of its production superstores, where it reconditions vehicles. The production superstores make up 60 of the company’s 99 retail locations.

"Since Memorial Day, we have taken significant steps forward in aligning our costs with current sales levels," said Chief Executive Tom Folliard in a news release. "Since that time, we have achieved our store staffing objectives in most departments, but it was necessary to make further reductions in service operations in order to reach these staffing goals."

"This was a difficult but necessary decision for us to make."

The reductions were part of the company’s long-term initiative to decrease costs in the reconditioning area wile maintaining vehicle quality, Folliard said.

Employees were notified on Wednesday and were offered severance packages, said CarMax spokeswoman Trina Lee. The company, which has about 15,250 employees, said it expects about $7 million in severance costs will be included in its results for the third quarter ending Nov paydayloans.com. 30.

Its shares fell 64 cents, or 4.6%, to close at $13.36 in trading Wednesday.

Last week, CarMax (KMX, Fortune 500) said its second-quarter earnings plunged 78% due to a weak economy, high gasoline prices and losses in its financing arm. The company said earnings for the quarter ended Aug. 31 fell to $14 million from $65 million in the same quarter last year.

Total sales fell 13% to $1.84 billion from $2.12 billion a year ago. CarMax said same-store sales, or sales at stores open at least a year, tumbled 17% during the quarter.

Folliard said last week the company is taking the necessary and appropriate steps to navigate through the difficult financial environment. Those steps had included a hiring freeze at its home office and a decrease in labor hours.

The company said new vehicle sales fell to $77.8 million from $104.8 million for the quarter, while the average selling price of its used vehicles declined 6% due to industrywide decreases in used-car prices.

As gas prices have climbed, people have been abandoning once-popular trucks and sport utility vehicles in favor of fuel-efficient small cars. That has driven used-truck and SUV values lower. 

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