Carvana Lost $500 Million Last Quarter

Matt Posky
by Matt Posky
carvana lost 500 million last quarter

Carvana – the used vehicle retailer with giant automotive vending machines – has reported that it suffered a $508 million net loss for the third quarter of 2022. Combined with the $945 million it bled through the first half of the year, the business is upside down for nearly $1.5 billion and we’ve still got three months left. 

Obviously, this isn’t an ideal market and Carvana was keen to remind investors of that fact. It cited dwindling sales, which it blamed on economic inflation, rising interest rates, and elevated vehicle pricing. While that last item helped dealers turn record profits starting in 2021, the bottom 50 percent of consumers have seen their buying power dwindle since 1970. North American income equality has gotten so wide that some people are being bounced out of the market altogether.

This seems to be reflected in Carvana’s sales figures, with the business seeing an 8-percent decline against Q3 of 2021. Still, that managed to generate $3.4 billion in revenue. Whatever your opinion on the legal practices of the Arizona-based company, that’s a lot of business to do in just three months. Translated into actual vehicles sold, Carvana said it moved 102,570 units off its many lots between July and October. 

While that certainly represents a healthy bit of trade, the prognosis could be better. According to Automotive News, per-vehicle profits fell to $3,500. That’s down from $4,672 during Q3 of 2021, back when there were more financial masochists browsing the secondhand market. 

Keep that the uptick in pricing that came last year resulted in the average dealership seeing a 180-percent increase in per-vehicle profit between the end of 2019 and the beginning of 2022. Though some estimates are substantially higher. Earlier this year, Haig Partners estimated that publicly-owned car dealerships scored an average profit of $7.1 million over the 12-month period ending in March of 2022. While companies focusing exclusively on used models aren’t assumed to have done quite as well, just about everyone who didn’t go under in 2020 was seeing record-breaking profits the following year. 

Consolidation was also a common theme over the last 24 months, with Carvana being just as growth-focused as anybody. The business is presently merging itself with ADESA U.S. – a large auction network, with over 50 physical sites, it purchased from KAR Global last May. The deal required an investment of $2.2 billion in exchange for ADESA auction sales, operations, and staff. This was supposed to aid the business by expanding Carvana’s ability to recondition the vehicles it sells while also giving it more direct control over the wholesale used car market. But like a lot of other businesses targeting explosive growth, rather than profit (e.g. Uber), it’s running into some trouble. 

Despite the company’s share price exploding at the start of the pandemic, relentless spending meant it still hadn’t achieved GAAP profitability. Carvana’s no-contact online sales model and heavy reliance on lending also worked a lot better during the pandemic, when nobody was leaving their homes and rates were more favorable. But those items are starting to become less lucrative and the absolutely insane used-vehicle prices that were giving all dealers a leg up are starting to look wildly unsustainable. Meanwhile, the business has begun to encounter some legal trouble in various states and investors have lost confidence. Despite the business’ revenue and stock valuation exploding in 2020, things started moving backward going into 2022. 

This effectively nullified sudden gains on the stock market and put the company into crisis mode. Carvana had increased average vehicle pricing by 30 percent over the last year and consumers were already tapping out of the market and was growing so fast that it was seeing severe operational problems. This resulted in some class-action lawsuits and a deluge of customer complaints – neither of which helped its sales or share price.

In its latest report, Carvana told investors that it had reduced expenses by $90 million (quarter-over-quarter) and would like to continue streamlining its expenses where possible. It’s also announced it would be laying off roughly 12 percent of its existing workforce going into the summer, meaning 2,500 fewer paychecks to hand out. Executives are also alleged to be going without salaried pay for the rest of 2022. But the road to redemption is likely to be a lot longer than Cavana’s swift fall from grace.

[Image: Ken Wolter/Shutterstock]

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2 of 16 comments
  • SnarkyRichard SnarkyRichard on Nov 07, 2022

    So paying insanely huge prices for cars you can't test drive isn't working out ? Who could have predicted that besides anyone with a modicum of common sense .

  • Dave M. Dave M. on Nov 08, 2022

    I have a friend who bought a cute little Fiat 500 from Carvana 4 years ago. While I understand the attraction of their business model for people who loathe the whole car buying process (many, many, many people), like Carmax their prices trend higher than local new car dealerships. Her Fiat is ready for replacement, and I'm helping her find a strong replacement locally.

    I just helped another friend find a reasonably priced car for her daughter heading off to college. We found an excellent condition 2005 Lexas ES that was just traded in at the local Lexas dealer. This was old-lady-pristine and they even certified it. Very reasonably priced...well, not 2019 prices, but not the expected horror show.

  • Varezhka Given how long the Mitsubishi USA has been in red, that's a hard one. I mean, this company has been losing money in all regions *except* SE Asia and Oceania ever since they lost the commercial division to Daimler.I think the only reason we still have the brand is A) Mitsubishi conglomerate's pride won't allow it B) US still a source of large volume for the company, even if they lose money on each one and C) it cost too much money to pull out and no one wants to take responsibility. If I was the head of Mitsubishi's North American operation and retreat was not an option, I think my best bet would be to reduce overhead by replacing all the cars with rebadged Nissans built in Tennessee and Mexico.As much as I'd like to see the return of Triton, Pajero Sport (Montero Sport to you and me), and Delica I'm sure that's more nostalgia and grass is greener thing than anything else.
  • Varezhka If there's one (small) downside to the dealer not being allowed to sell above MSRP, it's that now we get a lot of people signing up for the car with zero intention of keeping the car they bought. We end up with a lot of "lightly used" examples on sale for a huge mark-up, including those self-purchased by the dealerships themselves. I'm sure this is what we'll end up seeing with GR Corolla in Japan as well.This is also why the Land Cruiser has a 4 year waitlist in Japan (36K USD starting MSRP -> buy and immediately flip for 10, 20K more -> profit) I'm not sure if there's a good solution for this apart from setting the MSRP higher to match what the market allows, though this lottery system is probably as close as we can get.
  • Jeff S @Lou_BC--Unrelated to this article but of interest I found this on You Tube which explains why certain vehicles are not available in the US because of how the CAFE measures fuel standards. I remember you commenting on this a few years ago on another article on TTAC. The 2023 Chevrolet Montana is an adorable small truck that's never coming to the USA. It's not because of the 1.2L engine, or that Americans aren't interested in small trucks, it's that fuel economy legislation effectively prevents small trucks from happening. What about the Maverick? It's not as small as you think. CAFE, or Corporate Average Fuel Economy is the real reason trucks in America are all at least a specific dimension. Here's how it works and why it means no tiny trucks for us.
  • Gabe A new retro-styled Montero as their halo vehicle to compete against the Bronco, Wrangler and 4Runner. Boxy, round headlights like the 1st generation, two door and four door models, body on frame.A compact, urban truck, Mighty Max, to compete against the Maverick. Retro-styled like the early 90s Mighty Max.A new Outlander Sport as more of a wagon/crossover to compete against the Crosstrek and Kona. Needs to have more power (190+ HP) and a legit transmission, no CVT.A new Eclipse hybrid to compete against the upcoming redesigned Prius. Just match the Prius's specs and make it look great.Drop the Eclipse Cross, I am not sure why they wanted to resurrect the Pontiac Aztec. Keep the Mirage and keep it cheap, make the styling better and up the wheel size. The Outlander seems fine.I like the idea of some sort of commercial vehicle, something similar in size to the Promaster City but with AWD.
  • El scotto Will Ford ever stop putting a V-8 in Mustang GT's? Not as long as Bill Ford is around. I haven't shopped for an F-150 in years; can you still get a V-8 in one? Y'all have that one pair of really comfortable shoes you wear when you go shopping? Not buying gas and low maintenance will make EVs your comfortable shoes. Virtual signalling? Naw, they're slip-ons.