Carvana’s Online Auto Marketplace Thrived During the Pandemic. Can It Find Life After? – The Average Joe

    Carvana’s Online Auto Marketplace Thrived During the Pandemic. Can It Find Life After?

    Victor Lei — Head of Research

    January 25, 2024

    January 25, 2024

    Pop in, pick out, and drive off. That’s how effortless Carvana (NYSE:CVNA) has made car buying for customers. But last year, the debt-ridden car vending machine almost went bankrupt. Since then, $CVNA has surged nearly 600% in the past year — shocking traders who assumed they were heading for the ditch.

    Wheel of misfortune: During the pandemic, Carvana thrived as lockdowns pushed buyers to online car buying. With dealerships closing and new cars in short supply, Carvana’s presence became invaluable. However, Carvana’s CEO, Ernie Garcia, admitted the company “went heavily in the wrong direction” and miscalculated growth (Axios).

    • In 2021, Carvana sold over 425K used cars — a 75% increase compared to the previous year but dropped 3% in 2022.
    • That’s when used car prices plummeted, causing $CVNA to report a $1.6B net loss — and its stock dropped over 90%.

    From barely surviving to remarkably thriving

    Things began to turn around last year after Carvana restructured its debts and laid off employees, leading to its first operating profit in nearly two years. But the same can’t be said for one of its biggest competitors. Vroom (NASDAQ:VRM) announced this week that it would exit the used car market — laying off 90% of its employees — and direct its focus to AI and auto financing. The exit might ease competition, but Carvana still has to survive the volatile auto market (at least until interest rates fall).

    • The used car market has cooled, and interest rates have kept buyers off the market or unable to take out loans — 11% of auto loans were rejected last year, the highest since the Fed began tracking the numbers in 2013.
    • But after a 53% decline in used car prices, experts predict 2024 will be the year the auto market normalizes, with Michelle Krebs from Cox Automotive seeing more dealers competing with discounts.

    May the better bigger seller win: Carvana was once called the “Amazon of used cars,” but there’s an opportunity to disrupt the auto sales business — and ironically, Amazon (NASDAQ:AMZN) is planning its own entry into online car sales, starting with new Hyundai vehicles. But Garcia tells Axios that he isn’t concerned — he acknowledges the challenge of selling vehicles online and sees Amazon’s entry as proof of customer demand.

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