15 ms·

As Carvana crashes, used car dealers, not buyers, stand to win big

159 points by deltaomega 4y ago

pcurve 4y ago
Until recently, they've been able to keep expenses relatively low, but selling cars has always been low margin business. Their sales is still pretty strong, so I hope they're able to restructure their debt with creditors.
- meta2023 4y ago
  There was a whole lot of fraud going on between Carvana (public) and DriveTime (private). It'll come out in due course.
  - smt88 4y ago
    Can you explain the nature of the fraud and how it benefited each company?
    - jcampbell1 4y ago
      Drivetime is a privately held subprime used dealer group that lists their inventory on Carvana, which is a public spinoff of Drivetime. The CEO of Carvana is the son of the Drivetime owner. Plenty of room to launder profits via wholesale prices.
      - djbusby 4y ago
        This seems like wild speculation.
        MrMan 4y ago
        It’s probably dead accurate, let’s find out
        encryptluks2 4y ago
        There was people saying the same thing about similar comments regarding Theranos once.
        geeky4qwerty 4y ago
        In October 1990, García, then a Tucson-based real estate developer pleaded guilty to a felony bank fraud charge for his role as a straw borrower in the collapse of Charles Keating's Lincoln Savings and Loan Association.[4][5] Garcia "fraudulently obtained a $30-million line of credit in a series of transactions that also helped Lincoln hide its ownership in risky desert Arizona land from regulators."[4] Garcia spent three years on probation, and he and his firm filed for bankruptcy.[5] In 1991, García bought Ugly Duckling, a bankrupt rent-a-car franchise, for under $1 million and merged it with his own fledgling finance company, and turned it into a company selling and financing used cars for sub-prime buyers with poor credit history.[5] Garcia took the company public on the NASDAQ exchange in 1996, trading under the ticker "UGLY".[6] In 1999, Garcia was involved in six lawsuits alleging he had "abused his position to profit" from a real estate deal where he ultimately acquired 17 company properties at a 10% discount.[5] In 2002, Garcia and the former Ugly Duckling CEO, Gregory Sullivan, took the company private and renamed it DriveTime.[7] https://en.m.wikipedia.org/wiki/Ernest_Garcia_II https://en.m.wikipedia.org/wiki/Ernest_Garcia_II
    - meta2023 4y ago
      It didn’t benefit Drivetime at all, but father & son more than made up for it by selling off CVNA as it rallied to $370 last year. Give it a year or two, it’ll all come out.
  - jsemrau 4y ago
    This well researched article maybe assists here. https://seekingalpha.com/instablog/767332-clastic/5627003-carvana-loses-money-on-every-used-car-sold-related-parties-make-money-on-every-car-carvana https://seekingalpha.com/instablog/767332-clastic/5627003-ca...
- Spooky23 4y ago
  I wouldn’t believe that. It’s a financial scheme where they were somehow able to get massive collateralized loans to buy lots of inventory whose value is very volatile. It is reminiscent of an attempt to corner silver or something. I’m sure the insiders cashed out.
godzillabrennus 4y ago
Doesn’t help they seem to have played so fast and loose they lost the legal ability to register vehicles in the name of their buyers: https://www.motor1.com/news/621947/carvana-title-registration-issues-pennsylvania/ https://www.motor1.com/news/621947/carvana-title-registratio...
- hnburnsy 4y ago
  One of Carvanas major problems is titleing and registering cars doesn't scale. It is in most stares a manual, paperwork driven process. Example, Ohio has 88 County Clerks of Courts Title. Source, family member who worked there.
  - rwbt 4y ago
    Easy to blame that it's a manual paperwork driven process, but I'm glad that transferring a legal title isn't a one click process. These are not software EULAs and title related fraud is still a big risk even with all the safeguards. National chains like CarMax handle this paperwork just fine and Carvana should've invested more in the back office staff rather than overpaying for used Jettas, you know to move fast and break things.
    - jen_h 4y ago
      More like, move slow and jump titles. When they finally did send registration paperwork to our DMV, the state had it turned around in two days. Pretty quick!
  - godzillabrennus 4y ago
    Ohio has electronic titling now for dealers.
- jen_h 4y ago
  I went through this, it was a total battle to get them to legally register our car and I wouldn’t recommend the experience to anyone. I’m really surprised to have had to have scrolled down this far to see their registration hijinks mentioned…
altacc 4y ago
The problem seems to be that they sold too many cars with a negative margin. I've heard stories of people selling their cars sight unseen to Carvana for above market value and it seems they were left holding too many cars as the second hand car market normalized and prices decreased. Like a lot of VC funded companies, they were blinded to market realities by the cash each funding round produced. If they'd had to purchase cars with profits of past sales and their stock as collateral, they might have seen the reality sooner.
- kodah 4y ago
  The new car market is also probably contributing. I just bought a house and sold my hybrid for a Tacoma. I walked into a dealership lot to buy a '20 with 40k miles on it. I left with a brand new Tacoma with zero miles and a better package for $10k less. I was able to do this because the dealership needs to move inventory to get new cars from Toyota and hybrids are very in demand.
  - donw 4y ago
    Why'd you go for the Taco over a Tundra?
    - nyc640 4y ago
      Not GP, but the Tundra is enormous compared to a Tacoma for someone coming from a car and not used to a full-size. I was also considering a Tundra since the model refresh, but even compared to our current truck (Land Cruiser) the Tundra felt noticeably larger and less maneuverable.
      - bigtex 4y ago
        Is the Tundra Hybrid even available yet? I love my 2007 but that thirsty V8 gets awful gas mileage.
        KennyBlanken 4y ago
paulpauper 4y ago
A car vending machine . This is why investing in gimmicks/fads is generally not a good idea.
- PaulHoule 4y ago
  It's a super-competitive business.
- miketery 4y ago
  I wonder how well this rule holds. What’s a gimmick vs not? Juicero yes, Paleton probably, electric scooter depends on infrastructure?
- rhaway84773 4y ago
  The car vending machine was probably better looked upon as a marketing technique than the core of the business.
- deleted 4y ago
  [deleted]
- rodgerd 4y ago
  There's a lot of appeal to a car vending machine if done right. Like, if I could plug in that I want a Prius Alpha dropped off at my door for no more than X dollars, and someone would hook me up with a well-vetted second-hand Alpha, I would totally be very happy with that instead of guessing and wrangling. The problem is that involves a lot of stuff that self-styled hyperscalers are garbage at: quality checks, human interaction, and such.
cramjabsyn 4y ago
Good riddance. Their shady, shady, practices took full advantage of the trust customers need to have in a full service used car dealer. The execs should face legal penalties
- thejteam 4y ago
  Not going to defend Carvana... but most people trust used car dealers about as far as they can throw a full size pickup. Most of the problems with Carvana are the same problems you get at any used car dealer, just magnified by scale. All of the title/registration problems. Financing. Availability. Communication. No better or worse than any random dealer. My first car ever (25+ years ago) I received the wrong plate from the dealer. My dad and I noticed it and ran back to the dealer a day or two later. Good thing they didn't give away the plate they were supposed to give us.
  - bombcar 4y ago
    That’s a relatively minor one compared to what I’ve heard tell of - imagine buying a new car to only realize they gave you one that didn’t match VINs with all your paperwork - because they had two on the lot and you don’t notice u til you go to sel it years later.
    - cramjabsyn 4y ago
      Or trading in a car on good faith that they will pay off the trade in. But months pass and they don’t pay it off.. Then, after escalating, they pull a fresh payoff amount directly from your bank and pay that. Leaving the buyer with either: a) late payment marks on their credit from the old loan not being kept current with monthly payments, or b) several months of lost monthly payments towards the loan for a vehicle that is no longer in the buyers possession
  - cramjabsyn 4y ago
    It is objectively worse because with carvana you cannot physically walk in and talk to the same salesperson. They send you into a revolving door of phone associates. Like comcast, but for cars
ape4 4y ago
But buying a car from a dealer remains horrible
- barbariangrunge 4y ago
  This. Car dealerships are some of the most unpleasant places I’ve ever been inside. Pushy, manipulative, sleazy… it drove us to buy our last vehicle on Kijiji
- subroutine 4y ago
  Have you tried carmax? They don't allow sales people out on the lot. All the cars are unlocked, so you can get inside, and you can get all the info about the car from their app. I bought my last 2 cars from carmax, and was a totally painless experience.
  - cjoelrun 4y ago
    You pay a non insignificant amount more for this experience. Not that it isn't worth it to some people, you don't get a horrible price you're just guaranteed not a low price. True about the entire haggle free market though.
    - stevesearer 4y ago
      Also a fan of Carmax. I likely don’t have the skills / patience necessary to get a better deal from a dealership anyway so just buying a car in my price range without the games works pretty well.
    - scarface74 4y ago
      I pay not to have to deal with bullshit in a lot of areas of my life. Buying a car is the definition of “dealing with bullshit”. We have bought three of our last four cars from there and it always felt like a good experience. We bought our son a 2010 Jeep Liberty from there in 2020. It constantly had little problems that they would fix without a hassle for the first few months. Out of the blue, they called me and offered to reimburse me for one months payment on top of offering reimbursement on a car rental - they didn’t have to do either. We ended up turning down the car rental since I was working remotely by then and I just let him use my car.
davewritescode 4y ago
The problem is with buying cars site unseen. I follow some car groups that revolve around tuning BMW engines for lots of power. It became a meme to post before and after pictures of heavily modified, drag strip/race prepped cars and then on the back of Carvana trucks some months later. I feel really sorry for people who bought some of those 340s and M3s. It’s just too easy to unload junk cars on companies like Carvana. Dealerships have the tools to sniff this stuff out during trades.
- yellow_postit 4y ago
  Even Carmax does a modicum of due diligence. Carvana just sounds like a terribly run business model that could only operate on hopium.
- ghaff 4y ago
  Even dealers weren't digging deeply during peak shortages. I probably overpaid for the new car I had to wait for last summer. (Minimal negotiating leverage.) But I got what seemed like a surprisingly high trade in as well. But part of that was there was probably a period where you had buyers who were desperate for vehicles, any vehicle, that would get them to work or the store.
- whakim 4y ago
  I don't actually think buying cars sight unseen is the main obstacle here, because what you're describing (folks taking advantage of the system) represents a tiny percentage of transactions. I think the biggest issue is that you've taken a business which has notoriously low margins (used cars) and you're operating on the lowest margin end on both sides. On the sell side you're buying cars that would otherwise be sold private party - i.e. from the most price-conscious sellers. On the buy side you're competing against dealerships on price but also offering a more premium/white-glove experience which eats into your margins.
  - scarface74 4y ago
    The problem is that like with OpenDoor, asymmetrical information favors the seller. If I know I can get a better deal, I’m not going to use Carvana or OpenDoor. If I know there is something wrong with my car/house I’m going with Carvana/OpenDoor.
bastawhiz 4y ago
When I went to buy my car from Carvana, the guy that helped me said that the cost of used cars was incredible. People were buying cars, then trading them in a month or two later for a profit. He suggested I come back in a month or two to do the same to get a newer model. I'm not sure what the folks at Carvana were thinking, but it seems like even with a wild used car market and high inflation, this shouldn't reasonably be possible. Or at least, their sales associates shouldn't be pushing it.
- Mistletoe 4y ago
  Myself and many members of my family made some great easy sales to Carvana (they drive a truck to you!) and car dealers (they had to pay more than Carvana to get a car) way above market price several times during lockdown. I would like to thank the early investors in Carvana for these great deals and only wish it could have continued longer. >Who invested in Carvana? Carvana has 3 investors including JPMorgan Chase & Co., Ally Financial, and Citi.
- deleted 4y ago
  [deleted]
- KennyBlanken 4y ago
  What's funny is seeing the correction in action on cars.com / autotrader.com. You can see the price history, and dealers even just 6 months ago were asking outrageous prices and have since slashed their asking prices because they can't move the things, because new cars are cheaper or not much more expensive, have a warranty, and better financing.
  - bombcar 4y ago
    That’s what kills these things - they think it’ll never change and start acting accordingly. And of course it turns out that car companies are actually going to keep making cars.
jedberg 4y ago
I'm not surprised. I've heard multiple stories from multiple people about Carvana just forgot to collect money from them. They bought a used car, the car showed up, and Carvana just never took the money from them beyond the deposit. This is not only bad for Carvana and their cash flow, but bad for the buyer too, who just has to keep the money sitting there forever in case Carvana fixes the glitch and tries to transfer the money. I guess at least if they go bankrupt they can finally assume no one is coming for the cash...
- grumple 4y ago
  I'd expect debt instruments to be sold to debtors. Don't count on this.
  - jsemrau 4y ago
    Likely. Running extended collections operations across highly dispersed (low density) population is extremely expensive.
- rodgerd 4y ago
  > I guess at least if they go bankrupt they can finally assume no one is coming for the cash... My expectation would be that the liquidator is immediately going to start chasing those people, hard. Carvana may not be competent to organise collecting monies owed, but the folks managing bankruptcy? Hell no.
  - Waterluvian 4y ago
    Bankruptcy companies are like Star Wars backwater scrapyards. Might not seem sexy or high profile but man do they know how to strip a company down quickly and effectively.
    - rodgerd 4y ago
      If anything, they'll err in the other direction when chasing unpaid money: people won't be getting a free car because the recordkeeping and collections were a mess, people are going to be fighting with debt collectors over having paid their bills, but Carvana being a mess means that the debt collector will have no evidence of that.
pjbeam 4y ago
We sold my wife's old Versa for more than she paid new to Carvana about 2 years ago. I wasn't upset but definitely didn't seem sustainable??
- brianshaler 4y ago
  Yes, the unprecedented macroeconomic calamity that caused market-wide car prices to appreciate was not sustainable and is no longer happening.
sem000 4y ago
I think it should be very apparent to just about anyone that there aren’t enough programmers in the world to develop enough capable algorithms to buy and sell used cars or homes efficiently or profitably. There are way too many nuances involved in such transactions that used car dealerships and the traditional real estate transaction model is never going away. If there were any indication of it going the other way, used car dealerships would have gone out of business long ago. After all, you have been able to buy a used car privately through tons of websites or listing services without a middle man taking a profit for years. But the risk of doing so is too great.
- SturgeonsLaw 4y ago
  I've only ever bought used cars through private sales, never had an issue. I always get my mechanic to check them out before going ahead with a purchase though, that has absolutely saved me thousands before.
yazzku 4y ago
The header image there with the tall rack of cars certainly makes "Carvana crashes hard" and "has come crashing down" more vigorous and vicious. Props to the author.
xnx 4y ago
The car vending machines are such a monument to failure, at least here in the Chicago area where all the ones I see are totally empty.
- deleted 4y ago
  [deleted]
- Finnucane 4y ago
  I didn't even think those were real. I'd seen pictures, but I thought it was just for show. Like who would actually build that?
  - kevin_thibedeau 4y ago
    They're used for ordinary parking facilities in dense cities.
  - coredog64 4y ago
    They spent 18 months building one near my house, only to finish it as the company really started to go into the dumpster. It's near the offramp for the dealer's row in my town, so I suspect that the Cadillac, BMW, or Mercedes dealership will buy it for pennies on the dollar as an advertising billboard.
arealaccount 4y ago
Bummer, buying from a dealer always feels bad. Would be great if a company could figure out a digital off the shelf shopping experience. The last car buying experience I had the brick and mortar dealerships listed so many bait cars that online shopping was scammy/pointless.
- ketzo 4y ago
  Yeah, there's a lot of people here mocking Carvana, but the user experience is fucking phenomenal. (Yes, aside from the "user experience" of selling your car for more than it's worth). Buying from dealerships is not something I ever want to do again.
- Aunche 4y ago
  Carvana is basically a very poorly operated CarMax. You get a much better customer experience there, but you're also paying a premium for it.
- anitil 4y ago
  My understanding (from a poorly remembered Planet Money episode) is that this isn't a technical issue, it's a regulatory one. I'm not from the US and my memory is hazy so I don't know the details. Maybe this episode - https://www.npr.org/sections/money/2013/02/12/171814201/episode-435-why-buying-a-car-is-so-awful https://www.npr.org/sections/money/2013/02/12/171814201/epis...
- mkhpalm 4y ago
  Go through car buying services then report the dealership to the car buying service when you encounter a bait cars and scams.
  - gnicholas 4y ago
    Do car buying services do anything about these reports? It seems like pretty much every dealer bait-and-switches.
    - mkhpalm 4y ago
mlnhd 4y ago
good
eqmvii 4y ago
Carvana bought my car mid-pandemic without opening the trunk. That trunk definitely had a few surprises for them, or the new buyer... What a business model.
- treis 4y ago
  > without opening the trunk. That drunk I'm intrigued...
  - bombcar 4y ago
    Movies have told me it’s always a dead hooker.
hn_throwaway_99 4y ago
I bought a used car from Carvana before the pandemic, and this is pretty sad news to me because after that purchase I vowed that all my future cars would come from Carvana. The buying experience was simply excellent for me, and I couldn't be happier with the car I bought. I figured I probably could have gotten a comparable deal slightly cheaper somewhere else, but I would have wasted a ton of time, and still would have crossed my fingers that I wasn't buying a lemon - any slight premium I paid to Carvana I felt was totally worth it. I hope they can fix their financial issues (sounds like they just "bought high and are selling low") and their operational issues (in some places word got out that it was cheaper to just "buy" a Carvana car and then return it < 7 days rather than getting a car rental), because, at least for me, their purchasing experience was great.
- moralestapia 4y ago
  The problem with Carvana's valuation is that car dealerships run on thin margins. It's very hard to make billions out of that.
  - KennyBlanken 4y ago
    ...and this translated into very poor quality vehicles because they couldn't afford proper inspections and repairs (don't have to fix what you don't find! Let the customer sort it out! And be incredibly annoying to contact, so they maybe just go away...ie the Google model of customer service!) and their on-the-road staff were horribly trained. There are multiple videos out there of Carvana staff dropping people's "new" cars off the backs of the flatbed trucks. I remember seeing the ads for them hiring delivery drivers and it amounted to "have a pulse? friendly? We'll train you to drive a large commercial vehicle and load/unload cars, wooo!" If I remember correctly they were banned from car sales in multiple states, in some cases states banning them multiple times: https://www.google.com/search?q=carvana+banned+in+what+states https://www.google.com/search?q=carvana+banned+in+what+state...
    - bsagdiyev 4y ago
      Not sure why you were downvoted. They got their Raleigh (Wake County) license revoked for a while for selling cars with Virginia, South Carolina and Georgia titles IN North Carolina. Cars weren't passing basic safety inspection and sometimes they didn't even provide the title after months! Transferring an out of state title in NC hits you with a road tax up to a defined upper limit ($400 I believe is the absolute highest) based on car value and state you transfer from, so they likely did this to avoid paying that sales tax themselves before selling the car. It's shady as hell.
mrnobody_67 4y ago
The writing was on the wall for quite a while here... the company is literally run by convicted felons. Check out the short seller report -- https://www.sprucepointcap.com/carvana-co-update/ https://www.sprucepointcap.com/carvana-co-update/
encryptluks2 4y ago
I can see how people that sold a car to Carvana for a great price are happy, but I imagine there are lot of people that ended up with a bad overpriced vehicle from Carvana as well.
_8j50 4y ago
How about allowing smaller used car dealers to sell carvana inventory. Lot space is expensive but a lot of people shop online or on magazines before going in person anyways. It will be a good lure, just have the dealer make them wait until he gets the car from carvana while they checkout existing inventory. Carvana breaks even -ish and dealers make money on the financing side (they never make money on actual sale of the car only on interest anywayd). I never looked into carvana but there are many small dealers that don't need you to have a good credit or even a job to get a car. They could use carvanna as cloud service, vehicle-as-a-service VaaS if you will lol. I can't imagine buying a car at carvanna, I don't care much about test driving or getting pressured to buy by a used car salesman but the quality and pricing is too high and you can't bargain with carvanna but I can tell some no name used car lot salesman how I will be back and how much I need it, how I will bring people to him,etc... and get some flexibility. I suppose it is the same people that get their cars repaired at name brand shops and at dealers that buy this way. I need a guy that only accepts cash for whatever reason and build rapport with that person so he won't mess it up to charge more. i do that because they usually "find" parts somehow (usually just salvage) and avoid expensive parts or b.s. charges because if who their customer base is. I am used to this stuff then there are people trying to pass laws to limit cash usage! What a world.
- coredog64 4y ago
  I worked in this space at the turn of the century (Cobalt Group, now part of ADP). Dealers would grant access to their (usually) ADP backends that we'd scrape for inventory and then aggregate on websites (usually their own and maybe a larger hub). Today I'd say something like FB marketplace or Craigslist does that work. Smaller dealers post their inventory to Craigslist every day (or every week) and then Craigslist is the search engine. Unfortunately, at this price point, there's not enough margin for things like delivering cars, transferring across lots, etc.
traytaeh 4y ago
e-clinton 4y ago
Carvana offered me 36k for a Subaru I had paid 40K for 3 years earlier… that was about 6k more than carmax offered.
traytaeh 4y ago
traytaeh 4y ago
Nifty3929 4y ago
Remember when Zillow tried getting into the buying/flipping business? This is that, but worse because Carvana didn’t star with a profitable car-appraisal and listing service first, and have no main business left. Or maybe this is better actually, since it’s much clearer for investors: With Zillow, as an investor maybe I didn’t want to be in the home buying business at all. And now Zillow is burning my money by getting into it. If I had wanted to get into the home buying/flipping business I could have just bought Homevana stock. Carvana is clearly doing one thing. And if you want to do that thing you buy their stock.
millerj 4y ago
https://www.forbes.com/sites/johnhyatt/2022/12/08/carvana-ceos-net-worth-skids-but-his-dad-who-controls-company-is-worth-nearly-3-billion/?sh=7bee845e63cf https://www.forbes.com/sites/johnhyatt/2022/12/08/carvana-ce...
millerj 4y ago
[dead]
- duskwuff 4y ago
  There's porn sites that use all kinds of random keywords. This isn't a new thing, and it'd be appreciated if you could clearly mark links like this one as NSFW.
geeB 4y ago
My experiences were so different from > as Carvana was able to undercut its brick-and-mortar competition with vehicle prices. that I’m not sure how to make sense of it. Right before Covid I was shopping for a used car, and I remember their prices being outrageously higher than dealerships. I’m talking saving a few thousands dollars just by taking the dealer’s initial price without negotiating. Similar scenario just a couple of months ago, I was looking to sell and again reading how well they pay I got a quote… and it was less than half of the first number a dealer threw out (this was a really old and cheap car tbf, I don’t expect it to be that bad for more expensive ones). Either way, I always wondered how they possibly stayed in business, since it seemed weird that so many people would pay so much for the privilege of being ripped off a lot by some far away corporation, instead of having a person in front of you ripping you off a little. I deeply hate the dealership experience, but the bad feeling/buyer’s remorse wears off in a couple of days and I’d rather enjoy the extra money in my pocket. It’s very illuminating to me seeing the comments in this thread shedding some light into what people liked about Carvana and how they were being too generous with returns and losing money at scale. That makes some sense at least. But whenever articles talk about their good prices, it feels like a buried ad.

159 points by deltaomega 4y ago

Until recently, they've been able to keep expenses relatively low, but selling cars has always been low margin business. Their sales is still pretty strong, so I hope they're able to restructure their debt with creditors.

meta2023 4y ago
There was a whole lot of fraud going on between Carvana (public) and DriveTime (private). It'll come out in due course.
- smt88 4y ago
  Can you explain the nature of the fraud and how it benefited each company?
  - jcampbell1 4y ago
    Drivetime is a privately held subprime used dealer group that lists their inventory on Carvana, which is a public spinoff of Drivetime. The CEO of Carvana is the son of the Drivetime owner. Plenty of room to launder profits via wholesale prices.
    - djbusby 4y ago
      This seems like wild speculation.
      - MrMan 4y ago
        It’s probably dead accurate, let’s find out
      - encryptluks2 4y ago
        There was people saying the same thing about similar comments regarding Theranos once.
      - geeky4qwerty 4y ago
        In October 1990, García, then a Tucson-based real estate developer pleaded guilty to a felony bank fraud charge for his role as a straw borrower in the collapse of Charles Keating's Lincoln Savings and Loan Association.[4][5] Garcia "fraudulently obtained a $30-million line of credit in a series of transactions that also helped Lincoln hide its ownership in risky desert Arizona land from regulators."[4] Garcia spent three years on probation, and he and his firm filed for bankruptcy.[5] In 1991, García bought Ugly Duckling, a bankrupt rent-a-car franchise, for under $1 million and merged it with his own fledgling finance company, and turned it into a company selling and financing used cars for sub-prime buyers with poor credit history.[5] Garcia took the company public on the NASDAQ exchange in 1996, trading under the ticker "UGLY".[6] In 1999, Garcia was involved in six lawsuits alleging he had "abused his position to profit" from a real estate deal where he ultimately acquired 17 company properties at a 10% discount.[5] In 2002, Garcia and the former Ugly Duckling CEO, Gregory Sullivan, took the company private and renamed it DriveTime.[7] https://en.m.wikipedia.org/wiki/Ernest_Garcia_II https://en.m.wikipedia.org/wiki/Ernest_Garcia_II
  - meta2023 4y ago
    It didn’t benefit Drivetime at all, but father & son more than made up for it by selling off CVNA as it rallied to $370 last year. Give it a year or two, it’ll all come out.
- jsemrau 4y ago
  This well researched article maybe assists here. https://seekingalpha.com/instablog/767332-clastic/5627003-carvana-loses-money-on-every-used-car-sold-related-parties-make-money-on-every-car-carvana https://seekingalpha.com/instablog/767332-clastic/5627003-ca...
Spooky23 4y ago
I wouldn’t believe that. It’s a financial scheme where they were somehow able to get massive collateralized loans to buy lots of inventory whose value is very volatile. It is reminiscent of an attempt to corner silver or something. I’m sure the insiders cashed out.

godzillabrennus 4y ago

Doesn’t help they seem to have played so fast and loose they lost the legal ability to register vehicles in the name of their buyers: https://www.motor1.com/news/621947/carvana-title-registration-issues-pennsylvania/ https://www.motor1.com/news/621947/carvana-title-registratio...

hnburnsy 4y ago
One of Carvanas major problems is titleing and registering cars doesn't scale. It is in most stares a manual, paperwork driven process. Example, Ohio has 88 County Clerks of Courts Title. Source, family member who worked there.
- rwbt 4y ago
  Easy to blame that it's a manual paperwork driven process, but I'm glad that transferring a legal title isn't a one click process. These are not software EULAs and title related fraud is still a big risk even with all the safeguards. National chains like CarMax handle this paperwork just fine and Carvana should've invested more in the back office staff rather than overpaying for used Jettas, you know to move fast and break things.
  - jen_h 4y ago
    More like, move slow and jump titles. When they finally did send registration paperwork to our DMV, the state had it turned around in two days. Pretty quick!
- godzillabrennus 4y ago
  Ohio has electronic titling now for dealers.
jen_h 4y ago
I went through this, it was a total battle to get them to legally register our car and I wouldn’t recommend the experience to anyone. I’m really surprised to have had to have scrolled down this far to see their registration hijinks mentioned…

altacc 4y ago

The problem seems to be that they sold too many cars with a negative margin. I've heard stories of people selling their cars sight unseen to Carvana for above market value and it seems they were left holding too many cars as the second hand car market normalized and prices decreased. Like a lot of VC funded companies, they were blinded to market realities by the cash each funding round produced. If they'd had to purchase cars with profits of past sales and their stock as collateral, they might have seen the reality sooner.

kodah 4y ago
The new car market is also probably contributing. I just bought a house and sold my hybrid for a Tacoma. I walked into a dealership lot to buy a '20 with 40k miles on it. I left with a brand new Tacoma with zero miles and a better package for $10k less. I was able to do this because the dealership needs to move inventory to get new cars from Toyota and hybrids are very in demand.
- donw 4y ago
  Why'd you go for the Taco over a Tundra?
  - nyc640 4y ago
    Not GP, but the Tundra is enormous compared to a Tacoma for someone coming from a car and not used to a full-size. I was also considering a Tundra since the model refresh, but even compared to our current truck (Land Cruiser) the Tundra felt noticeably larger and less maneuverable.
    - bigtex 4y ago
      Is the Tundra Hybrid even available yet? I love my 2007 but that thirsty V8 gets awful gas mileage.
      - KennyBlanken 4y ago

paulpauper 4y ago

A car vending machine . This is why investing in gimmicks/fads is generally not a good idea.

PaulHoule 4y ago
It's a super-competitive business.
miketery 4y ago
I wonder how well this rule holds. What’s a gimmick vs not? Juicero yes, Paleton probably, electric scooter depends on infrastructure?
rhaway84773 4y ago
The car vending machine was probably better looked upon as a marketing technique than the core of the business.
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rodgerd 4y ago
There's a lot of appeal to a car vending machine if done right. Like, if I could plug in that I want a Prius Alpha dropped off at my door for no more than X dollars, and someone would hook me up with a well-vetted second-hand Alpha, I would totally be very happy with that instead of guessing and wrangling. The problem is that involves a lot of stuff that self-styled hyperscalers are garbage at: quality checks, human interaction, and such.

cramjabsyn 4y ago

Good riddance. Their shady, shady, practices took full advantage of the trust customers need to have in a full service used car dealer. The execs should face legal penalties

thejteam 4y ago
Not going to defend Carvana... but most people trust used car dealers about as far as they can throw a full size pickup. Most of the problems with Carvana are the same problems you get at any used car dealer, just magnified by scale. All of the title/registration problems. Financing. Availability. Communication. No better or worse than any random dealer. My first car ever (25+ years ago) I received the wrong plate from the dealer. My dad and I noticed it and ran back to the dealer a day or two later. Good thing they didn't give away the plate they were supposed to give us.
- bombcar 4y ago
  That’s a relatively minor one compared to what I’ve heard tell of - imagine buying a new car to only realize they gave you one that didn’t match VINs with all your paperwork - because they had two on the lot and you don’t notice u til you go to sel it years later.
  - cramjabsyn 4y ago
    Or trading in a car on good faith that they will pay off the trade in. But months pass and they don’t pay it off.. Then, after escalating, they pull a fresh payoff amount directly from your bank and pay that. Leaving the buyer with either: a) late payment marks on their credit from the old loan not being kept current with monthly payments, or b) several months of lost monthly payments towards the loan for a vehicle that is no longer in the buyers possession
- cramjabsyn 4y ago
  It is objectively worse because with carvana you cannot physically walk in and talk to the same salesperson. They send you into a revolving door of phone associates. Like comcast, but for cars

ape4 4y ago

But buying a car from a dealer remains horrible

barbariangrunge 4y ago
This. Car dealerships are some of the most unpleasant places I’ve ever been inside. Pushy, manipulative, sleazy… it drove us to buy our last vehicle on Kijiji
subroutine 4y ago
Have you tried carmax? They don't allow sales people out on the lot. All the cars are unlocked, so you can get inside, and you can get all the info about the car from their app. I bought my last 2 cars from carmax, and was a totally painless experience.
- cjoelrun 4y ago
  You pay a non insignificant amount more for this experience. Not that it isn't worth it to some people, you don't get a horrible price you're just guaranteed not a low price. True about the entire haggle free market though.
  - stevesearer 4y ago
    Also a fan of Carmax. I likely don’t have the skills / patience necessary to get a better deal from a dealership anyway so just buying a car in my price range without the games works pretty well.
  - scarface74 4y ago
    I pay not to have to deal with bullshit in a lot of areas of my life. Buying a car is the definition of “dealing with bullshit”. We have bought three of our last four cars from there and it always felt like a good experience. We bought our son a 2010 Jeep Liberty from there in 2020. It constantly had little problems that they would fix without a hassle for the first few months. Out of the blue, they called me and offered to reimburse me for one months payment on top of offering reimbursement on a car rental - they didn’t have to do either. We ended up turning down the car rental since I was working remotely by then and I just let him use my car.

davewritescode 4y ago

The problem is with buying cars site unseen. I follow some car groups that revolve around tuning BMW engines for lots of power. It became a meme to post before and after pictures of heavily modified, drag strip/race prepped cars and then on the back of Carvana trucks some months later. I feel really sorry for people who bought some of those 340s and M3s. It’s just too easy to unload junk cars on companies like Carvana. Dealerships have the tools to sniff this stuff out during trades.

yellow_postit 4y ago
Even Carmax does a modicum of due diligence. Carvana just sounds like a terribly run business model that could only operate on hopium.
ghaff 4y ago
Even dealers weren't digging deeply during peak shortages. I probably overpaid for the new car I had to wait for last summer. (Minimal negotiating leverage.) But I got what seemed like a surprisingly high trade in as well. But part of that was there was probably a period where you had buyers who were desperate for vehicles, any vehicle, that would get them to work or the store.
whakim 4y ago
I don't actually think buying cars sight unseen is the main obstacle here, because what you're describing (folks taking advantage of the system) represents a tiny percentage of transactions. I think the biggest issue is that you've taken a business which has notoriously low margins (used cars) and you're operating on the lowest margin end on both sides. On the sell side you're buying cars that would otherwise be sold private party - i.e. from the most price-conscious sellers. On the buy side you're competing against dealerships on price but also offering a more premium/white-glove experience which eats into your margins.
- scarface74 4y ago
  The problem is that like with OpenDoor, asymmetrical information favors the seller. If I know I can get a better deal, I’m not going to use Carvana or OpenDoor. If I know there is something wrong with my car/house I’m going with Carvana/OpenDoor.

bastawhiz 4y ago

When I went to buy my car from Carvana, the guy that helped me said that the cost of used cars was incredible. People were buying cars, then trading them in a month or two later for a profit. He suggested I come back in a month or two to do the same to get a newer model. I'm not sure what the folks at Carvana were thinking, but it seems like even with a wild used car market and high inflation, this shouldn't reasonably be possible. Or at least, their sales associates shouldn't be pushing it.

Mistletoe 4y ago
Myself and many members of my family made some great easy sales to Carvana (they drive a truck to you!) and car dealers (they had to pay more than Carvana to get a car) way above market price several times during lockdown. I would like to thank the early investors in Carvana for these great deals and only wish it could have continued longer. >Who invested in Carvana? Carvana has 3 investors including JPMorgan Chase & Co., Ally Financial, and Citi.
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KennyBlanken 4y ago
What's funny is seeing the correction in action on cars.com / autotrader.com. You can see the price history, and dealers even just 6 months ago were asking outrageous prices and have since slashed their asking prices because they can't move the things, because new cars are cheaper or not much more expensive, have a warranty, and better financing.
- bombcar 4y ago
  That’s what kills these things - they think it’ll never change and start acting accordingly. And of course it turns out that car companies are actually going to keep making cars.

jedberg 4y ago

I'm not surprised. I've heard multiple stories from multiple people about Carvana just forgot to collect money from them. They bought a used car, the car showed up, and Carvana just never took the money from them beyond the deposit. This is not only bad for Carvana and their cash flow, but bad for the buyer too, who just has to keep the money sitting there forever in case Carvana fixes the glitch and tries to transfer the money. I guess at least if they go bankrupt they can finally assume no one is coming for the cash...

grumple 4y ago
I'd expect debt instruments to be sold to debtors. Don't count on this.
- jsemrau 4y ago
  Likely. Running extended collections operations across highly dispersed (low density) population is extremely expensive.
rodgerd 4y ago
> I guess at least if they go bankrupt they can finally assume no one is coming for the cash... My expectation would be that the liquidator is immediately going to start chasing those people, hard. Carvana may not be competent to organise collecting monies owed, but the folks managing bankruptcy? Hell no.
- Waterluvian 4y ago
  Bankruptcy companies are like Star Wars backwater scrapyards. Might not seem sexy or high profile but man do they know how to strip a company down quickly and effectively.
  - rodgerd 4y ago
    If anything, they'll err in the other direction when chasing unpaid money: people won't be getting a free car because the recordkeeping and collections were a mess, people are going to be fighting with debt collectors over having paid their bills, but Carvana being a mess means that the debt collector will have no evidence of that.

pjbeam 4y ago

We sold my wife's old Versa for more than she paid new to Carvana about 2 years ago. I wasn't upset but definitely didn't seem sustainable??

brianshaler 4y ago
Yes, the unprecedented macroeconomic calamity that caused market-wide car prices to appreciate was not sustainable and is no longer happening.

sem000 4y ago

I think it should be very apparent to just about anyone that there aren’t enough programmers in the world to develop enough capable algorithms to buy and sell used cars or homes efficiently or profitably. There are way too many nuances involved in such transactions that used car dealerships and the traditional real estate transaction model is never going away. If there were any indication of it going the other way, used car dealerships would have gone out of business long ago. After all, you have been able to buy a used car privately through tons of websites or listing services without a middle man taking a profit for years. But the risk of doing so is too great.

SturgeonsLaw 4y ago
I've only ever bought used cars through private sales, never had an issue. I always get my mechanic to check them out before going ahead with a purchase though, that has absolutely saved me thousands before.

yazzku 4y ago

The header image there with the tall rack of cars certainly makes "Carvana crashes hard" and "has come crashing down" more vigorous and vicious. Props to the author.

xnx 4y ago

The car vending machines are such a monument to failure, at least here in the Chicago area where all the ones I see are totally empty.

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Finnucane 4y ago
I didn't even think those were real. I'd seen pictures, but I thought it was just for show. Like who would actually build that?
- kevin_thibedeau 4y ago
  They're used for ordinary parking facilities in dense cities.
- coredog64 4y ago
  They spent 18 months building one near my house, only to finish it as the company really started to go into the dumpster. It's near the offramp for the dealer's row in my town, so I suspect that the Cadillac, BMW, or Mercedes dealership will buy it for pennies on the dollar as an advertising billboard.

arealaccount 4y ago

Bummer, buying from a dealer always feels bad. Would be great if a company could figure out a digital off the shelf shopping experience. The last car buying experience I had the brick and mortar dealerships listed so many bait cars that online shopping was scammy/pointless.

ketzo 4y ago
Yeah, there's a lot of people here mocking Carvana, but the user experience is fucking phenomenal. (Yes, aside from the "user experience" of selling your car for more than it's worth). Buying from dealerships is not something I ever want to do again.
Aunche 4y ago
Carvana is basically a very poorly operated CarMax. You get a much better customer experience there, but you're also paying a premium for it.
anitil 4y ago
My understanding (from a poorly remembered Planet Money episode) is that this isn't a technical issue, it's a regulatory one. I'm not from the US and my memory is hazy so I don't know the details. Maybe this episode - https://www.npr.org/sections/money/2013/02/12/171814201/episode-435-why-buying-a-car-is-so-awful https://www.npr.org/sections/money/2013/02/12/171814201/epis...
mkhpalm 4y ago
Go through car buying services then report the dealership to the car buying service when you encounter a bait cars and scams.
- gnicholas 4y ago
  Do car buying services do anything about these reports? It seems like pretty much every dealer bait-and-switches.
  - mkhpalm 4y ago

mlnhd 4y ago

good

eqmvii 4y ago

Carvana bought my car mid-pandemic without opening the trunk. That trunk definitely had a few surprises for them, or the new buyer... What a business model.

treis 4y ago
> without opening the trunk. That drunk I'm intrigued...
- bombcar 4y ago
  Movies have told me it’s always a dead hooker.

hn_throwaway_99 4y ago

I bought a used car from Carvana before the pandemic, and this is pretty sad news to me because after that purchase I vowed that all my future cars would come from Carvana. The buying experience was simply excellent for me, and I couldn't be happier with the car I bought. I figured I probably could have gotten a comparable deal slightly cheaper somewhere else, but I would have wasted a ton of time, and still would have crossed my fingers that I wasn't buying a lemon - any slight premium I paid to Carvana I felt was totally worth it. I hope they can fix their financial issues (sounds like they just "bought high and are selling low") and their operational issues (in some places word got out that it was cheaper to just "buy" a Carvana car and then return it < 7 days rather than getting a car rental), because, at least for me, their purchasing experience was great.

moralestapia 4y ago
The problem with Carvana's valuation is that car dealerships run on thin margins. It's very hard to make billions out of that.
- KennyBlanken 4y ago
  ...and this translated into very poor quality vehicles because they couldn't afford proper inspections and repairs (don't have to fix what you don't find! Let the customer sort it out! And be incredibly annoying to contact, so they maybe just go away...ie the Google model of customer service!) and their on-the-road staff were horribly trained. There are multiple videos out there of Carvana staff dropping people's "new" cars off the backs of the flatbed trucks. I remember seeing the ads for them hiring delivery drivers and it amounted to "have a pulse? friendly? We'll train you to drive a large commercial vehicle and load/unload cars, wooo!" If I remember correctly they were banned from car sales in multiple states, in some cases states banning them multiple times: https://www.google.com/search?q=carvana+banned+in+what+states https://www.google.com/search?q=carvana+banned+in+what+state...
  - bsagdiyev 4y ago
    Not sure why you were downvoted. They got their Raleigh (Wake County) license revoked for a while for selling cars with Virginia, South Carolina and Georgia titles IN North Carolina. Cars weren't passing basic safety inspection and sometimes they didn't even provide the title after months! Transferring an out of state title in NC hits you with a road tax up to a defined upper limit ($400 I believe is the absolute highest) based on car value and state you transfer from, so they likely did this to avoid paying that sales tax themselves before selling the car. It's shady as hell.

mrnobody_67 4y ago

The writing was on the wall for quite a while here... the company is literally run by convicted felons. Check out the short seller report -- https://www.sprucepointcap.com/carvana-co-update/ https://www.sprucepointcap.com/carvana-co-update/

encryptluks2 4y ago

I can see how people that sold a car to Carvana for a great price are happy, but I imagine there are lot of people that ended up with a bad overpriced vehicle from Carvana as well.

_8j50 4y ago

How about allowing smaller used car dealers to sell carvana inventory. Lot space is expensive but a lot of people shop online or on magazines before going in person anyways. It will be a good lure, just have the dealer make them wait until he gets the car from carvana while they checkout existing inventory. Carvana breaks even -ish and dealers make money on the financing side (they never make money on actual sale of the car only on interest anywayd). I never looked into carvana but there are many small dealers that don't need you to have a good credit or even a job to get a car. They could use carvanna as cloud service, vehicle-as-a-service VaaS if you will lol. I can't imagine buying a car at carvanna, I don't care much about test driving or getting pressured to buy by a used car salesman but the quality and pricing is too high and you can't bargain with carvanna but I can tell some no name used car lot salesman how I will be back and how much I need it, how I will bring people to him,etc... and get some flexibility. I suppose it is the same people that get their cars repaired at name brand shops and at dealers that buy this way. I need a guy that only accepts cash for whatever reason and build rapport with that person so he won't mess it up to charge more. i do that because they usually "find" parts somehow (usually just salvage) and avoid expensive parts or b.s. charges because if who their customer base is. I am used to this stuff then there are people trying to pass laws to limit cash usage! What a world.

coredog64 4y ago
I worked in this space at the turn of the century (Cobalt Group, now part of ADP). Dealers would grant access to their (usually) ADP backends that we'd scrape for inventory and then aggregate on websites (usually their own and maybe a larger hub). Today I'd say something like FB marketplace or Craigslist does that work. Smaller dealers post their inventory to Craigslist every day (or every week) and then Craigslist is the search engine. Unfortunately, at this price point, there's not enough margin for things like delivering cars, transferring across lots, etc.

traytaeh 4y ago

e-clinton 4y ago

Carvana offered me 36k for a Subaru I had paid 40K for 3 years earlier… that was about 6k more than carmax offered.

traytaeh 4y ago

Nifty3929 4y ago

Remember when Zillow tried getting into the buying/flipping business? This is that, but worse because Carvana didn’t star with a profitable car-appraisal and listing service first, and have no main business left. Or maybe this is better actually, since it’s much clearer for investors: With Zillow, as an investor maybe I didn’t want to be in the home buying business at all. And now Zillow is burning my money by getting into it. If I had wanted to get into the home buying/flipping business I could have just bought Homevana stock. Carvana is clearly doing one thing. And if you want to do that thing you buy their stock.

millerj 4y ago

https://www.forbes.com/sites/johnhyatt/2022/12/08/carvana-ceos-net-worth-skids-but-his-dad-who-controls-company-is-worth-nearly-3-billion/?sh=7bee845e63cf https://www.forbes.com/sites/johnhyatt/2022/12/08/carvana-ce...

millerj 4y ago

[dead]

duskwuff 4y ago
There's porn sites that use all kinds of random keywords. This isn't a new thing, and it'd be appreciated if you could clearly mark links like this one as NSFW.

geeB 4y ago

My experiences were so different from > as Carvana was able to undercut its brick-and-mortar competition with vehicle prices. that I’m not sure how to make sense of it. Right before Covid I was shopping for a used car, and I remember their prices being outrageously higher than dealerships. I’m talking saving a few thousands dollars just by taking the dealer’s initial price without negotiating. Similar scenario just a couple of months ago, I was looking to sell and again reading how well they pay I got a quote… and it was less than half of the first number a dealer threw out (this was a really old and cheap car tbf, I don’t expect it to be that bad for more expensive ones). Either way, I always wondered how they possibly stayed in business, since it seemed weird that so many people would pay so much for the privilege of being ripped off a lot by some far away corporation, instead of having a person in front of you ripping you off a little. I deeply hate the dealership experience, but the bad feeling/buyer’s remorse wears off in a couple of days and I’d rather enjoy the extra money in my pocket. It’s very illuminating to me seeing the comments in this thread shedding some light into what people liked about Carvana and how they were being too generous with returns and losing money at scale. That makes some sense at least. But whenever articles talk about their good prices, it feels like a buried ad.