Carvana Cuts Workers Amid Slowing Sales and Debt Squeeze
Carvana Co.
CVNA -14.19%
is further cutting staff and facing a deeper slowdown in sales as it tries to reduce costs and conserve cash to stay current on more than $7 billion of debt, employees and industry analysts said.
The online used-car seller is quietly terminating employees, cutting hours and letting open positions go unfilled, according to current and former employees and internal emails reviewed by The Wall Street Journal.
Several operations teams are working fewer than 30 hours a week or four-day workweeks, the emails said. Carvana laid off 4,000 employees last year, nearly a fifth of its staff, after growth slowed from a torrid pace during the pandemic.
Carvana’s sales are declining sharply and it has fewer cars listed on its website, according to data collected by JXCE LLC, which scrapes the listings on Carvana’s site to track its sales and inventory. Meanwhile, Carvana’s inventory is steadily losing value as used-car prices pull back from pandemic highs.
Carvana’s retail sales in the fourth quarter are expected to drop to around 86,000 vehicles, down from 113,000 the year prior, JXCE’s data shows. Much of Carvana’s inventory is sitting longer, with the average listing in the fourth quarter having been on the site for 97 days, up from 65 in the prior quarter, JXCE said.
A Carvana spokesman said that the shift to e-retailing for selling cars will continue and Carvana’s infrastructure makes it the best-positioned company to benefit over the long haul.
Carvana shares saw gains of more than 40% on Wednesday as part of a rally that saw it post significant gains alongside another heavily shorted stock,
Bed Bath & Beyond Inc.
Its shares are down 98% from their peak in 2021, and its bonds are trading at distressed levels.
Carvana pursued aggressive growth during the pandemic and borrowed heavily to fund it. Over the past year, however, the markets turned against it as interest rates rose, used-car prices declined and the company’s sales growth reversed, wrecking its growth narrative.
“They need scale to be successful but now they need to cut costs,” said
Jory Eisenberg,
an analyst at CreditSights. “They’re kind of screwed from both directions.”
Carvana was a pandemic success story as shoppers, buoyed by low interest rates and increased savings, flocked online to buy used cars. In 2021, the startup tied
-parent Meta Platforms Inc. as one of the youngest companies to join the Fortune 500.
The company entered 2022 positioning itself for further growth. It purchased the U.S. assets of used-car auction business Adesa, in a deal company executives said would supercharge Carvana’s ability to grow.
By the time the deal closed, it was clear Carvana wasn’t going to meet its growth targets. The deal, however, had more than doubled the long-term debt on the company’s balance sheet.
Business tumbled in the third quarter when Carvana’s losses rose more than eightfold to $283 million. In December, the company hired financial advisers
Moelis
& Co., which have a reputation for hard-fought restructurings.
Slower turnover could add to Carvana’s debt squeeze. The company finances its inventory through a credit line with
Ally Financial Inc.
and
Deutsche Bank AG
. The terms of that financing stipulate that Carvana pays more on inventory that sits on its lots longer than 150 days.
The vehicles in Carvana’s inventory are also potentially worth less than what they were purchased for. The widely used Manheim Used Vehicle Value Index finished December down 14.9% from the year prior, the largest decline in the metric’s history.
During an internal call with staff in November, Carvana’s Chief Executive Officer
Ernie Garcia III
said the company’s cars were depreciating at a rate of about $25 a day, up from a historical rate of $10 a day.
And when Carvana does make a sale, it sometimes sells the car for less. Though average sales prices have been relatively flat, prices on Carvana’s bestselling models have declined an average of 5% since the second quarter, according to JXCE.
“It’s almost a classic example of a company that bought high and is selling low,” said
James Gellert,
CEO of risk analytics software provider Rapid Ratings, which analyzes companies’ financial health.
Write to Ben Foldy at [email protected]
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
Carvana Co.
CVNA -14.19%
is further cutting staff and facing a deeper slowdown in sales as it tries to reduce costs and conserve cash to stay current on more than $7 billion of debt, employees and industry analysts said.
The online used-car seller is quietly terminating employees, cutting hours and letting open positions go unfilled, according to current and former employees and internal emails reviewed by The Wall Street Journal.
Several operations teams are working fewer than 30 hours a week or four-day workweeks, the emails said. Carvana laid off 4,000 employees last year, nearly a fifth of its staff, after growth slowed from a torrid pace during the pandemic.
Carvana’s sales are declining sharply and it has fewer cars listed on its website, according to data collected by JXCE LLC, which scrapes the listings on Carvana’s site to track its sales and inventory. Meanwhile, Carvana’s inventory is steadily losing value as used-car prices pull back from pandemic highs.
Carvana’s retail sales in the fourth quarter are expected to drop to around 86,000 vehicles, down from 113,000 the year prior, JXCE’s data shows. Much of Carvana’s inventory is sitting longer, with the average listing in the fourth quarter having been on the site for 97 days, up from 65 in the prior quarter, JXCE said.
A Carvana spokesman said that the shift to e-retailing for selling cars will continue and Carvana’s infrastructure makes it the best-positioned company to benefit over the long haul.
Carvana shares saw gains of more than 40% on Wednesday as part of a rally that saw it post significant gains alongside another heavily shorted stock,
Bed Bath & Beyond Inc.
Its shares are down 98% from their peak in 2021, and its bonds are trading at distressed levels.
Carvana pursued aggressive growth during the pandemic and borrowed heavily to fund it. Over the past year, however, the markets turned against it as interest rates rose, used-car prices declined and the company’s sales growth reversed, wrecking its growth narrative.
“They need scale to be successful but now they need to cut costs,” said
Jory Eisenberg,
an analyst at CreditSights. “They’re kind of screwed from both directions.”
Carvana was a pandemic success story as shoppers, buoyed by low interest rates and increased savings, flocked online to buy used cars. In 2021, the startup tied
-parent Meta Platforms Inc. as one of the youngest companies to join the Fortune 500.
The company entered 2022 positioning itself for further growth. It purchased the U.S. assets of used-car auction business Adesa, in a deal company executives said would supercharge Carvana’s ability to grow.
By the time the deal closed, it was clear Carvana wasn’t going to meet its growth targets. The deal, however, had more than doubled the long-term debt on the company’s balance sheet.
Business tumbled in the third quarter when Carvana’s losses rose more than eightfold to $283 million. In December, the company hired financial advisers
Moelis
& Co., which have a reputation for hard-fought restructurings.
Slower turnover could add to Carvana’s debt squeeze. The company finances its inventory through a credit line with
Ally Financial Inc.
and
Deutsche Bank AG
. The terms of that financing stipulate that Carvana pays more on inventory that sits on its lots longer than 150 days.
The vehicles in Carvana’s inventory are also potentially worth less than what they were purchased for. The widely used Manheim Used Vehicle Value Index finished December down 14.9% from the year prior, the largest decline in the metric’s history.
During an internal call with staff in November, Carvana’s Chief Executive Officer
Ernie Garcia III
said the company’s cars were depreciating at a rate of about $25 a day, up from a historical rate of $10 a day.
And when Carvana does make a sale, it sometimes sells the car for less. Though average sales prices have been relatively flat, prices on Carvana’s bestselling models have declined an average of 5% since the second quarter, according to JXCE.
“It’s almost a classic example of a company that bought high and is selling low,” said
James Gellert,
CEO of risk analytics software provider Rapid Ratings, which analyzes companies’ financial health.
Write to Ben Foldy at [email protected]
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
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