Carvana Seeks Growth of Its Inventory, as Pandemic Causes Used Car Contraction

Corey Lewis
by Corey Lewis
carvana seeks growth of its inventory as pandemic causes used car contraction

As other used car retail outfits like Shift go public in an attempt to grow their number of stores and break into the (lucrative?) used-only dealership market, established player Carvana has a different issue on its hands: There just aren’t enough used cars to buy these days.

The 2020 pandemic has restricted the supply of used cars. Consumers work from home, cancel or curtail time away and vacations, and spend money on their homes instead of that shiny new whip. Hey, those used rides are fine if they largely sit in the garage.

It’s created a problem for Carvana, which needs a lot of used cars to make its business function properly – especially as it’s been growing rapidly. New additions to the Carvana portfolio include inspection/reconditioning centers outside Columbus, Ohio, and Orlando, Florida. The company has a total of 10 such centers nationally, and by end of the year, there should be 11 in operation. In Q3 of 2020, Carvana sourced more cars than it sold, but it still wasn’t enough to fill the lots.

Carvana has grown retail sales and revenue this year but is still losing money overall. In its latest shareholder call, the company reported a 39 percent increase in Q3 sales over Q2, to 64,414 cars. Revenue was also up 41 percent, to $1.54 billion. Overall though, the company still experienced a net loss of $17.7 million. That figure was considerably better than the pre-pandemic time (remember that?) of Q3 2019 when there was a net loss of $92.2 million.

Spurned by the growth operational scale, investors are also focused on Carvana’s promising increases in profitability. At the start of 2020, the company’s stock was worth $93.81 a share, but at market close on October 30th shares stood at $185.26.

With the national supply of used cars at a low point, dealers are eager for that trade-in and will pay top dollar. But that means used car shoppers are looking at inflated prices across the board. It might be the time to stretch the life on that jalopy a bit longer, much to Carvana’s chagrin.

[Image: Carvana]

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  • Sigfried Sigfried on Nov 04, 2020

    I recently upgraded my wife's car. I started out looking for a 3-4 year old car with 30-40,000 miles so I could pay off a 5 year note before it hit 100,000 miles. What I found was that dealer's typically were asking 80% of the price of a new car for the three year old model. If you figure a 10 year life span that means spending 80% of new for 70% of the life of the car. Or to put it differently, holding the car till it's 10 years old without taking into account residual value, buying a used car for $24,000 meant paying $3500 a year for seven years of use while buying new for $30,000 meant paying $3,000 a year for ten years of use. After I decided buying used wasn't a better value than buying new, my wife got a new 2021 Honda Pilot EX.

    • See 3 previous
    • Mopar4wd Mopar4wd on Nov 05, 2020

      @Sigfried I think alot has to do with what you see as acceptable risk. So this was my first car I have financed and first over about $6500 bucks. I normally buy cars for cash and drive until they are dead or close to dead. The Pilot replaced a 20 year old Durango we had owned for 11 of those years with almost 200k miles on it. Given that most of our cars over the past 20 years have been 10-15 years old with no warranty a 4 year old car with a 6 month warranty was a big improvement. Given that repair costs on a 20 year old Daimler Chrysler product were under 500 bucks a year the risk on a 4 year old Honda seems low. I put down around 5k and financed the rest, it gets driven about 7k miles a year so we will have a year of payments (maybe less) still when it hits 100k miles but we will be no where near underwater so that matters little to me. I have driven lots of older cars, and everything I have owned built after about 1990 has lasted to 150k miles with little major trouble (other then the AC system on the Durango) so again acceptable risk. I actually did try to push my wife into leasing a new one( which over 3 year of ownership would run remarkably similar) but she said she did not want to change cars every 3 years and preferred to buy what she wanted and not worry about lease turn in. Buying new would have made the monthly payment more then I would have wanted.

  • Sigfried Sigfried on Nov 06, 2020

    It's all about trade-offs. I give up this to get that. There is always some feature or nicety that only costs a little bit more. But once you start up that path it's tough to know where to draw the line.

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