Carvana Lost $500 Million Last Quarter

Matt Posky
by Matt Posky

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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Matt Posky
Matt Posky

A staunch consumer advocate tracking industry trends and regulation. Before joining TTAC, Matt spent a decade working for marketing and research firms based in NYC. Clients included several of the world’s largest automakers, global tire brands, and aftermarket part suppliers. Dissatisfied with the corporate world and resentful of having to wear suits everyday, he pivoted to writing about cars. Since then, that man has become an ardent supporter of the right-to-repair movement, been interviewed on the auto industry by national radio broadcasts, driven more rental cars than anyone ever should, participated in amateur rallying events, and received the requisite minimum training as sanctioned by the SCCA. Handy with a wrench, Matt grew up surrounded by Detroit auto workers and managed to get a pizza delivery job before he was legally eligible. He later found himself driving box trucks through Manhattan, guaranteeing future sympathy for actual truckers. He continues to conduct research pertaining to the automotive sector as an independent contractor and has since moved back to his native Michigan, closer to where the cars are born. A contrarian, Matt claims to prefer understeer — stating that front and all-wheel drive vehicles cater best to his driving style.

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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.

  • 3-On-The-Tree Lou_BCsame here I grew up on 2-stroke dirt bikes had a 1985 Yamaha IT200 2-strokes then a 1977 Suzuki GT750 2-stroke 750 streetike fast forward to 2002 as a young flight school Lieutenant I bought a 2002 suzuki Hayabusa 1300 up in Huntsville Alabama. Still have that bike.
  • Milton Rented one for about a month. Very solid EV. Not as fun as my Polestar, but for a go to family car, solid. Practical EV ownership is only made possible with a home charger.
  • J Love mine, but the steering wheel blocks dashboard a bit, can't see turn signals nor headlights icons. They could use the upper corners of the screen for the turn signals. Mileage is much lower than shown too, disappointing
  • Aja8888 NO!
  • OrpheusSail I once did. My first four cars were American made, and through an odd set of circumstances surrounding a divorce, I wound up with a '95 Nissan Maxima which was fourteen years old and had about 150,000 miles on it.It was drove better, had an amazing engine, and was more reliable than any of my American cars. This included a new '95 GMC pickup that went through five alternators in under two years while the dealership insisted that there was no underlying electrical problem while they tried to run the clock on the warranty.That was the end of 'buy American'. I've bought from Honda and VW since, and I'll consider just about anything except American now.