End of an era.
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A lot of hot air. ZIRP zombie company.
Can you believe these guys peaked at a valuation of $5 billion in 2020?
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It has started.
They can’t be the only ones hurting.
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Wow so Shift and Vroom are out?
Carvana and Carmax actually have physical locations and better financing structures. But I can’t imagine them hanging on without a major overhaul.
You would think not having physical locations is a positive. A lot less overhead.
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Carmax has been around a while, before you could buy a car online. I’ll give Carvana 12 months.
Carmax is owned by Cox, which owns Manheim and KBB, so it’s going to be a bit. themselves and they own Edmunds.com
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Anyone know Vroom’s inventory level before this shutdown? How many vehicles are about to be auctioned off?
Explains the shit offers they’ve been making lately
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Way overdue in my opinion, most people in the industry knew this was bound to happen. You would think Carvana would be next but with the stock price still ticking back up its possible they will be around for a while.
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Inventory as of September 30th was $239 million. Assuming a random guess of $25K per car, I’d say around 10K cars. Could be way off though.
While Tesla may be able to sell poorly assembled and dirty cars to buyers sight unseen at list price, I don’t think people with other brands and secondary market vehicles are as happy with that approach. Especially a used car that may not be accurately described online or needs more reconditioning than what a Vroom or Shift want to pay.
Also, consider the general auto industry has a script to run when maximizing their margins. Leasehacker tends to buck that convention with the ridiculous fire sales and bargain pricing. But your average dealership expects the car buyer to come into their showroom so the seller can execute their price-maximizing script. In absence of putting the screws on people to max out their spending, dealerships would need to do a ton more volume. But, it turns out you can’t always solve the total-profit problem with more volume.
CarMax benefits from having these showrooms to drag people parting ways with their used car so CarMax can screw them. Then CarMax benefits from having the same showroom be the scene where they screw the future buyers. Their variable margin are always going to be better than Shift and Vroom… and so far that has paid for those inefficient physical locations.
I used to work in Domestic auto and worked with Sales to execute lots of ways to put the screws on customers to maximize margins. More stress on the buyer = more money. And more money is more better. The US auto industry is broadly ruthless in how they take advantage of customers when they walk through the door.
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I’ve always felt these companies survived because they financed everyone, and now that the finance everyone rates are like 10%+, it’s beyond reasonable, even for the worst decision makers. This business model worked much better when you could borrow at 2% and lend at 6%.
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I don’t think the problem was their ability to finance buyers. I think their problem was their ability to finance their own inventories and carry. How many used cars do you think they had nationwide? 10,000? That’s ~$250mm inventory
Lenders rarely extend 100% advance for used cars unless the interest rate is higher. Even if their operations were break-even, their equity capital just gets consumed propping this inventory and working capital.
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10% is a steal. Sub prime lending at 19.99%+
There is typically a cap where the dealers are able to mark up so the finance company will make majority of the interest of the vehicle.
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Fact check
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Ugh Carmax owns Edmunds, not KBB. You are right.
Wiki still says they were founded by the guys who owned Circuit City.
Everybody was saying Carvana was dead last year (many on LHer as well), and yet they remain at a 1054% increase in stock price over a year.
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Vroom has always been a money losing enterprise, or since it went public anyways which is the latest data we have. Classic ZIRP take in capital fuel growth figure out profitability later. But you only have so much runway and when the cost of capital spikes writing is on the wall. Especially when you have other lines of business than are likely more profitable.
Carvana other than a couple random periods was the same, but has done well the last couple quarters after getting destroyed last year. Don’t know enough to say specifically what they did to improve margins, I know they restructured their debt when they were close to bankruptcy.
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They also sold off a lot of land and leased it back at a lower rate.