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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.
SoftTalker 4y ago
This is the problem when SV startup approaches hit the world of physical products. This isn't software. To sell a car, you first have to buy one. You cannot create them out of bits and sell more at nearly zero marginal cost. Your inventory has a carrying cost. You're playing in a market. Carvana got caught buying high and having to sell low. Was there any securities trading firm or auto retailer experience on their management team or board?
freeopinion 4y ago
I have several issues with your comment. 1. What makes you think car dealerships run on thin margins? I don't know what typical margins are, but the owners seem to do pretty well. This may be despite low margins. But I'm reluctant to accept your claim without proof. 2. What qualifies as low margin? 1%? 10%? 3. It is entirely possible to make billions on low margins. A dealer that makes $1000 per car can make $1 billion profit by selling 1 million cars. If the average car sells for $15k, a $1k profit would be a < 7% margin. See question 2 about low margins. A little mom-and-pop lot in a very small town can sell 5-10 cars per month. It doesn't seem unreasonable for a huge national online dealership to sell 1 million cars. 4. What timeframe are we talking? Five years? Carmax financials say they do more than $5 billion in a single quarter.
- deleted 4y ago
  [deleted]
- twelve40 4y ago
  not the parent, but they probably meant "compared to typical vc-funded startup expected margins". most faangs don't need to ship tons of steel to anybody and their margins are around 25%. can you disrupt used cars given all the logistics of the physical world? maybe, I don't know, but people here report both carmax and carvana having severe business issues, why?
  - freeopinion 4y ago
    Typical vc-funded startups have negative margins.
  - hn_throwaway_99 4y ago
    Don't disagree with the sentiment that selling physical products is a lot more intensive than a SaaS app, but to this point, "people here report both carmax and carvana having severe business issues" is definitely due to the whiplash in the used car business due to COVID. That is, both new and used car prices skyrocketed due to supply chain issues, so CarMax and Carvana had to pay a ton for their inventory. Now car prices are "normalizing", so both of these companies have high priced inventory that they now need to sell in a low(er) priced market.

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.

SoftTalker 4y ago

This is the problem when SV startup approaches hit the world of physical products. This isn't software. To sell a car, you first have to buy one. You cannot create them out of bits and sell more at nearly zero marginal cost. Your inventory has a carrying cost. You're playing in a market. Carvana got caught buying high and having to sell low. Was there any securities trading firm or auto retailer experience on their management team or board?

freeopinion 4y ago

I have several issues with your comment. 1. What makes you think car dealerships run on thin margins? I don't know what typical margins are, but the owners seem to do pretty well. This may be despite low margins. But I'm reluctant to accept your claim without proof. 2. What qualifies as low margin? 1%? 10%? 3. It is entirely possible to make billions on low margins. A dealer that makes $1000 per car can make $1 billion profit by selling 1 million cars. If the average car sells for $15k, a $1k profit would be a < 7% margin. See question 2 about low margins. A little mom-and-pop lot in a very small town can sell 5-10 cars per month. It doesn't seem unreasonable for a huge national online dealership to sell 1 million cars. 4. What timeframe are we talking? Five years? Carmax financials say they do more than $5 billion in a single quarter.

deleted 4y ago
[deleted]
twelve40 4y ago
not the parent, but they probably meant "compared to typical vc-funded startup expected margins". most faangs don't need to ship tons of steel to anybody and their margins are around 25%. can you disrupt used cars given all the logistics of the physical world? maybe, I don't know, but people here report both carmax and carvana having severe business issues, why?
- freeopinion 4y ago
  Typical vc-funded startups have negative margins.
- hn_throwaway_99 4y ago
  Don't disagree with the sentiment that selling physical products is a lot more intensive than a SaaS app, but to this point, "people here report both carmax and carvana having severe business issues" is definitely due to the whiplash in the used car business due to COVID. That is, both new and used car prices skyrocketed due to supply chain issues, so CarMax and Carvana had to pay a ton for their inventory. Now car prices are "normalizing", so both of these companies have high priced inventory that they now need to sell in a low(er) priced market.