Lately, Carvana has been in the news for all the wrong reasons. Its share price is down over 90% since its pandemic peak and currently sits below the low levels of March 2020. This article provides an abbreviated history of Carvana from its founding in 2012 to 2022 and discusses what its successes and struggles mean for traditional auto dealerships. Where It All Began The company was founded by Ernie Garcia III in 2012. Garcia sought to improve the vehicle buying experience for consumers. He attributed the idea partly to how cars are bought and sold at wholesale auctions. These auctions are key sources of supply for auto dealers, particularly used vehicle dealers with limited opportunities to acquire cars via trade-ins. Garcia noted it took dealers all of 30 seconds of seeing a vehicle to purchase it. His vision was to bring this ease of acquisition mainstream. Prior to founding Carvana, Garcia began working at DriveTime Automotive Group in 2007, an auto giant owned by his father. This is where he got the idea of selling cars online, though it would take years for this idea to take off. What Makes Carvana Unique Carvana has become known for its iconic car vending machines which debuted in late 2015. These worked as a centralized location for customers to pick up vehicles, lowering delivery costs. It was also a novel concept with marketing benefits for the brand. Compared to a traditional dealership, going vertical reduced the upfront investment in real estate compared to large, expansive lots that are largely sitting empty in the current inventory shortage. Another thing that makes Carvana stand out is its onlinefirst presence. Carvana operates as an online platform to buy and sell used cars, but this option for consumers isn’t new. The difference with Carvana is that the company acts as the dealership rather than taking a fee for simply listing the vehicles. The company also earns a substantial amount of its gross profit from financing rather than the actual sale of vehicles. Vehicle financing has increasingly become a key aspect of profitability for traditional dealerships as well. While Carvana fixes the vehicles it purchases prior to reselling them, they don’t provide after-sale services like repair and maintenance, a key driver of profitability for traditional dealerships. Scaling the Business Carvana seeks to provide a uniform buying experience with price transparency, an oft-cited pain point with traditional auto sales for consumers. To achieve this, the company needed to significantly increase scale in order to be profitable. How the Pandemic Darling May Have Flown Too Close to the Sun By David W.R. Harkins, Senior Financial Analyst, Mercer Capital Carvana Is Looking More Like Icarus wvcar.com 24 WVADA
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