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Wednesday, 25 May 2022 11:46

Carvana, Vroom in Serious Trouble

Written by Steven Symes, Motorious

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For some time, upstarts Carvana and Vroom have been transforming how thousands of Americans buy their cars. Focusing on internet sales and non-traditional delivery methods, these chains enamored cynical consumers tired of the old dealership games.

However, problems for both companies are accumulating. The question moving forward is will Carvana and Vroom be able to weather the storm?

 

Carvana

 

When it went public in 2017, many both inside and outside the auto industry were trumpeting Carvana as the future of car dealerships. "The Amazon of car dealers” was surging despite critics waving it off as a short-lived fad. However, that meteoric rise suddenly sputtered and reversed course this year as news hit that Carvana was laying off 2,500 employees.

 

During an earnings phone call with investors in April, Carvana CEO Ernie Garcia described the first quarter of this year as “challenging.” He tried to calm potential jitters investors might very well be feeling, thanks in no small part to J.P. Morgan characterizing those Q1 results as “confidence shattering,” since the company lost more per share than originally predicted. In the past nine months, market value for Carvana has plummeted a whopping 92%. It seems the “growth-at-all-costs” strategy has sputtered.

 

Sales for Carvana dropped 7% during the first quarter of this year. Thanks to car prices increasing, many people have simply been priced out of buying a different vehicle.

 

That factor should be affecting more than just Carvana, signaling potential trouble across the industry. The difference between other dealers and Carvana is Carvana struggled to manage its excess inventory gracefully, thanks in part to what some former employees claim is explosive growth contributing to logistics problems. Ultimately, during Q1 of this year, Carvana lost $3,255 for every vehicle sold.

 

Garcia cited several factors to explain away the troubles Carvana has been facing recently. He brought up the COVID pandemic, which initially worked in favor of the company, as people wanted to buy cars but didn’t want to interact with others face-to-face. Buying a used vehicle from a giant vending machine or having it delivered at their house was soothing for many, but that charm seems to have worn thin.

 

Garcia also referenced...


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