WASHINGTON, D.C. – Carvana – an online used car retailer based in Tempe, Arizona known for its multi-story car vending machines – claimed to be taking a financial beating when they recently informed investors they have posted a loss of $945 million just six months into 2022.
However, experts are finding these claims of financial distress on Carvana’s part confusing, given the fact that COVID-related computer chip shortages have resulted in a dearth of new cars available to buyers and have greatly driven up demand – and prices – in the used vehicle market.
With Carvana’s bread and butter being high-end used cars, it would be assumed that they would be reaping the benefits of this situation; indeed, the company showed a nine percent increase last quarter, so posting a loss approaching $1 billion just halfway through the year has many industry analysts scratching their heads.
After revealing a $439 million loss in the second quarter of 2022, Carvana sent out a letter to their stockholders that claimed “high used vehicle prices” were responsible for their financial woes, resulting in a loss of over 34 percent per vehicle they sold, a bizarre explanation that some felt defied belief. Selling their inventory at higher prices than before was actually losing the company money?
While vehicle prices overall – both new and used – are skyrocketing, it can be argued that some buyers are holding onto their old cars longer until the market stabilizes and prices return to normal. But again, it must be said that the company experienced a nine percent increase in sales in the same quarter they claim to have lost $439 million, some say that argument fails to hold water.
It could be that, given the inflation of used car prices as of late, Carvana is paying more to acquire inventory than they previously had, which is eating into their profits. However, industry experts note that profits for automotive dealers nationwide are the highest they’ve been in quite some time, with reported profit margins up by over one-third. Even in a market where dealers may be paying more for inventory, losing money when sales are up is almost an impossibility.
Of course, experts note that the loss Carvana is claiming could simply be to other aspects of their business not related to selling costs, such as company expenses including their recent purchase of the Adesa U.S. auction network; however, the company reportedly let go of thousands of employees at the time of the network purchase, so some say that explanation too fails to make sense.
In the end, experts are scratching their heads, as Carvana appears to be one of the only vehicle dealers losing hundreds of millions of dollars with increased sales in what is very much a seller’s market.
Christopher Boyle is an investigative journalist, videographer, reporter and writer for SEARCHEN NETWORKS® as well as other independent news and media organizations in the United States. Christopher works on a wide variety of topics and fields, has been featured in print and online in a variety of publications, from local to national, and helps keep a keen-eye on what’s happening in the automotive world for Auto Buyers Market.