Carvana’s Failure Nears

By Douglas A. McIntyre Published Nov 19, 2:22PM EST

Follow 24/7 Wall St. on Google

This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.

Carvana’s Failure Nears — © BCFC / Getty Images

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.
[nativounit]
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.
[wallst_email_signup]
It looks likely, however, that no one can take the helm of Carvana and fix it. That chance has come and gone.

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.