Carvana, Vroom Are In Serious Trouble

⚡️ Read the full article on Motorious

Both promised big and have delivered mixed results…

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 who were tired of the old dealership games. However, the revolution seems to be losing steam as problems for both companies accumulate. The question moving forward is will Carvana and Vroom be able to weather the storm, or is this curtains for the new kids on the block?

Check out the Motorious Podcast on YouTube, Spotify, Apple Podcasts, and other podcast platforms.

Carvana

When it went public in 2017, many both inside and outside the auto industry were trumpeting Carvana as the future of car dealerships. After all, “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 9 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.

For his part, Garcia cited several factors to explain away the troubles Carvana has been facing recently. He of course brought up the covid pandemic, something 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 skyrocketing used car prices along with climbing interest rates for eroding the bottom line of the company.  Carvana is working to shrink costs by focusing on better managing selling, general, and administrative expenses per vehicle sold. However, the dealership chain says it’s aiming to not negatively impact each customer’s buying or selling experience as a result of cuts. But that’s where another issue plagues Carvana.

An industry source told us “Carvana is no longer allowed to sell in some states because of their title issues.” That’s backed up by multiple reports across the country. For example, Illinois recently suspended Carvana’s dealership license after an investigation concluded the company has been failing to transfer vehicle titles to customers while abusing out-of-state temporary registration permits. Carvana reportedly will have to correct these problems before the suspension will be lifted.

Carvana has had hundreds if not thousands of complaints filed against it in states like Maryland, North Carolina, Florida, and Texas. Chalk it up to logistical problems as the company has set up dealership locations all over the nation, but many customers have complained that after months of waiting, they still didn’t receive their vehicle title and couldn’t register their new ride in their state.