The company borrowed $3.3 billion at 10.25 percent - a higher interest rate than Carvana thought it would need to pay to get the deal done, said Chris Pierce, a Needham and Co. Carvana believes that acquisition will give it the capacity to ready an additional 2 million vehicles for sale each year.īut that real estate cost $2.2 billion, and Carvana took on a large chunk of costly debt to fund it. Then this week it finalized its purchase of the ADESA U.S. In addition, he said, investors and shareholders today are seeking more discipline around costs and free cash flow as interest rates rise.Ĭarvana spent money in the first quarter to add three more of its own inspection and reconditioning centers. So it's a little unfortunate that they're having to lay off people - you never want to do that for a company like this - but I think it is a consequence of the macro slowdown, ultimately." "I think they grew a little too quickly and built a business for a much higher level of volume. In it, Garcia said Carvana's work force is larger than needed and that the company "can't be certain growth will rebound quickly enough to bring us back into balance."Ĭarvana did a good job of scaling its business over the past two years, when used-car pricing and demand were favorable, Gupta said.īut "the business was not built in a fashion to be prepared to handle a downturn like this," Gupta said. Uncertainty about 2022 was an important theme this week when former Carvana employees circulated an email CEO Ernie Garcia apparently sent companywide about the job cuts. managing director covering the retailer/hardlines sector, which includes Carvana. It sold fewer vehicles than it had planned and earned 23 percent less from each sale than it did a year earlier.Īnd the company knows demand "probably isn't getting better in the near term," said Daniel Imbro, a Stephens Inc. Morgan who covers auto retail, including Carvana, Vroom and Shift.Ĭarvana, the largest of the three, lost $506 million in the first quarter. ![]() "This is going to be a long process of slowing down growth and managing costs better," said Rajat Gupta, senior equity analyst at J.P. But for these companies, which have been trying to achieve scale that can give them a competitive advantage, it may be the end of the beginning.Īfter flexing their skills and vision during the pandemic, they now find themselves needing to take a more measured approach toward growth to preserve cash and build toward consistent profitability. Whether they can contain costs and curb losses in the coming months will be crucial, analysts said.Īnalysts who cover the companies told Automotive News that this period likely doesn't represent the beginning of the end for the online used-vehicle retail segment. Public dealership groups, which like many retailers have been emphasizing used-vehicle operations while expanding their digital business, reported robust first-quarter earnings.īut the online retailers find themselves in worrisome territory. To be sure, the economy is still growing rapidly, the job market is hot and interest rates remain low by historical standards. Tougher conditions will require cutting back in some areas, as executives prioritize what they need to spend money on this year, she said. "And up until January, I don't think any of these companies were expecting the industry to get as tough as it did as quick as it did." "You have to plan your infrastructure to support growth over the next year," said Sharon Zackfia, who covers all three online used-vehicle sellers as an analyst at investment bank William Blair.
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