By on June 6, 2017

Carvana dealership, Image: Carvana

Carvana, the company we previously razzed for its innocuous multistory automotive contrivances, has suddenly found itself facing some legitimate problems. The car dealer is now famous for two things: vehicular vending machines and a majority shareholder with criminal ties to a major savings and loan scandal — who also happens to be the father of the business’ CEO and co-founder.

The organization is also facing a share price that has dipped 40 percent since its April 27 IPO. However, that can likely be blamed on an over-saturated used car market. Secondhand cars are incredibly affordable at the moment so, if you wanted to support Carvana or any other used vehicle vendor, now would be a good time. You just have to be alright with doing business with Ernie Garcia II, the ex-con investors are likely going to blame if the share price doesn’t bounce back. 

Bloomberg Technology is suggesting investors will want answers when the company releases its first earnings report. “A controlling shareholder having a fraud conviction is of interest to other shareholders,” John Coffee, a professor of corporate law at Columbia University, explained to Bloomberg. “I think a company doing a public offering should disclose this factor.”

While that is fair, establishing a company’s value on a CEO’s father’s business dealings from two decades prior is not. Still, with the majority of the tax benefits generated through the IPO going to early investors — including majority shareholder Garcia — is worth being mindful of his background.

Garcia pleaded guilty to bank fraud in the early 1990s for his involvement in the downfall of California thrift Lincoln Savings and Loan Association, which resulted in a national political scandal (after five U.S. senators came were caught accepting bribes). Garcia avoided prison time by testifying for federal prosecutors and received three years probation.

None of that amounts to Carvana being worthy of glowing praise or condemnation, though. The company sells used cars online, with an inventory of roughly 7,300 used and reconditioned vehicles. Customers shop online and can schedule a delivery of the car, or go pick it up from Carvana’s multistory, coin-operated, vending machine gimmick. Considering its regional limitations, fleet size, and the abysmal condition of the used car market, Carvana may have been slightly overvalued. But that’s about all you can fault it with right now, and none of that has anything to do with the majority shareholder’s identity.

[Image: Carvana]

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11 Comments on “Is Carvana’s Ex-Con Co-Founder to Blame for Its Fading IPO?...”


  • avatar
    28-Cars-Later

    Nice overall piece but this tidbit is most definitely fake news:

    “Secondhand cars are incredibly affordable at the moment”

    In fact, NADA is forecasting only a 1.7% decline for Dec 17 YoY. For a market *at least* 30% overvalued, affordable does not make it be.

    http://www.zerohedge.com/sites/default/files/
    images/user230519/imageroot/2017/01/23
    /2017.01.23%20-%20Used%20Car%20Pricing.JPG

    If the Morgan Stanley base case is met, by 2021 no less, then the industry would only decline to where it was around 2005 in terms of valuations.

    http://www.zerohedge.com/sites/default/files/
    images/user230519/imageroot/2017/03/31/
    2017.03.31%20-%20Used%20Car%201.JPG

  • avatar
    sirwired

    I cannot figure out what on earth those guys are thinking with those incredibly-expensive vending machines, which are located at sites that STILL have to be staffed.

    I guess the machine is decent marketing, but there has to be a cheaper way of buying the same publicity in a way that isn’t so wasteful.

    • 0 avatar
      JimZ

      a “Car vending machine” is what you get when you ask an 8-year-old boy what he would do with a million dollars.

      I can’t understand the mindset of any “investor” who would throw money at such a stupid idea. nevermind anyone dumb enough to underwrite an IPO for it.

      the investment community needs a very painful reset.

  • avatar
    bikegoesbaa

    Doesn’t “ex-con” mean “was previously a convict” implying that he spent time in prison?

    If he managed to avoid a custodial sentence by testifying and only got probation he may be a convicted felon but he’s not actually an “ex-con”. Right?

  • avatar
    Land Ark

    I’ve been seeing Carmax sales prices advertised lower than traditional dealers. That’s how I know the used car market is starting to struggle.

    • 0 avatar
      joeaverage

      I recently bought an Acura from Carmax. First time CarMax buyer. Excellent experience. Was right on NADA priced, perfect condition. Was $3K-$4K below the starting price at dealers for a several hundred mile radius of our home. I didn’t feel like driving 250 miles and still needing to negotiate a price plus needing to make the trip 2x or more (I did financing through our credit union).

      I had always heard Carmax charged a premium for the convenience factor, felt I paid a fair to good price for the vehicle I got.

      What are used car prices doing right now, what are they predicted to do over the next few months, and what can we expect from place like CarMax, Carvana and dealers. That would be a good article topic.

  • avatar
    Commando

    Carvana is bad. Well, not really. It could be if… Maybe it’s good and bad. Or neither.

    Jeezes, what a “hit” piece of crap this article was.

  • avatar
    PRNDLOL

    Carvana stock is actually currently up about 20% today:

    https://www.google.com/finance?cid=710268635585811

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