Used car sales company Carvana has posted awful financial results. Its stock sold off and is down 85% for the past year. Poor management will not only be a burden to investors—12% of the company’s workforce was fired.
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As the company announced the layoffs, Carvana CEO Ernie Garcia III made this observation, which was reported in The Wall Street Journal, “It has always been the right move to start building for growth well ahead of when we expect it to show up. This strategy worked for us every year until this one.” Alternatively, the problem could be blamed on poor judgment.
Carvana faces period when the increase in used car prices is likely to fall, and the trend already has started. Retail used car sales and prices declined over the past month, according to industry data.
It might be that Carvana’s success is built on the car shortage that has limited supply and driven up prices. The industry microchip shortage, which has slowed production, may last until next year. However, there is evidence that Americans are willing to keep cars longer instead of paying inflated prices. If demand continues to slacken, both sales and sales prices face an erosion for the first time in well over a year.
Carvana has joined the long list of hot companies that had massive share price increases and have already fallen to earth, both financially and in the number of people they can reasonably employ. Hard as it may be to believe, its share price may have further to fall.
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