Carvana, the used car company, had a model that worked for about two years. The model has collapsed, its stock has fallen, its bonds have lost a huge amount of value, and it may run out of cash next year. As the market for used car sales has changed substantially, Carvana won’t survive, at least as anything like the company it is today.
Carvana has huge car vending machines that never made any sense as a way to sell and deliver vehicles. Customers are given a token as part of the sales process. The vehicle spins down to a door when the token is put into the vending machine. The customer drives the car. If they want to complete the sale they sign paperwork and go on their way–driving their newly bought used car. Perhaps the process is fun to watch. The machines are about nine stories tall. Carvana has 34 of them. It planned to build more of the facilities.
Several waves have hit Carvana at once. The first is the interest rate on car loans has soared as the Federal Reserve pushed all interest rates higher. Used car loan interest rates can be as high as 7% to 11%, depending on credit scores. These were less than half that amount a year ago.
The next challenge for Carvana is the used car prices, which skyrocketed for two years, have started to come down. More new cars are available, consumers have delayed purchases, and the average age of a car on the road in America is 12 years. People will delay a used car purchase if they have to or if they want to.
Carvana’s stock is in free fall and could go lower. This year it has plunged 97% to $8. According to Bloomberg, its bonds trade for about 50 cents on the dollar. Several analysts believe it could run out of cash late next year. Since its business is broken and losses are not likely to end, there is no reason to believe the situation will improve.
Carvana recently laid off 1,500 employees. That is on top of 2,500 in May. CEO Ernie Garcia has not fired himself. He admits the mistakes that have ruined Carvana are his. A restructuring expert should replace him.
It looks likely, however, that no one can take the helm of Carvana and fix it. That chance has come and gone.
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