Does that hurt the largest used car retailer who has overpaid for inventory? I don't know if it hurts them seriously. Maybe their turnover is so great it would wash out very quickly?

As others mentioned, it does hurt, but only for as long as it takes to replace the inventory.

Used car prices go up and down around a long term trend which resembles inflation.
Used car dealers get a one-time boost from inventory when they rise, and a one-time drag when they fall, but it's kind of a wash over time.

For longer term returns from Carmax, it's more useful simply to concentrate on the volume, at least for the pure retailing side of the business.
To a first approximation, they make a constant gross margin per vehicle. (one number for retail, a lower one for wholesale)
Plus of course the financing side, which is driven by the share of sales financed and the interest margin. Loan losses are not as big a deal as you might think.

Their stated growth goals set in spring 2022 were to hit 5% market share of 0-10 year old US used car sales by end calendar 2025,
revenue of $33-46bn in FY Feb 2026, and volume of 2-2.4m vehicle sales by then.
For comparison: Market share was 4.0%, revenue was a hair under $30bn, and volume about 1.4m, in the FY ended Feb 2023.

Jim