Carvana's losses widen as the used-car market stalls
Last year was a wreck for Carvana, the online used-car seller known for its tall glass "car vending machines." In 2022, the company sold fewer cars than it had the year before — the first time that's happened in nine years — and the company's losses grew as the used car market soured.
Overall, Carvana's losses ballooned to $806 million, or $7.61 per class A share of stock, compared to $89 million in the last quarter of 2021. For the full year, the company lost $1.6 billion compared to a loss of $135 million in 2021.
Carvana is the second largest used-car retailer in America after CarMax by a wide margin.
Auto industry supply chain problems that decreased the supply of new cars led to dramatic increases in the price of Carvana's product, used cars. Many of the issues have begun to resolve in the new car market and, consequently, used car prices have recently started to come down. Rapidly rising interest rates just added to the problem, meaning Carvana had a harder time selling cars, the company said in its fourth-quarter earnings announcement.
Accustomed to sales growth, Carvana was simply unprepared for the market drop it encountered, the company said.
The number of cars Carvana sold in the fourth quarter last year dropped 23% from a year earlier to about 87,000 while overall revenue declined 24%.
For the full year, Carvana sold 3% fewer vehicles while revenue, at $13.6 billion, increased 6%. Carvana has been aggressively reducing its inventories, the company said, cutting the number of vehicles held in inventory by 27% in the fourth quarter.
"This last year has been a massive change in priorities for the company. The world changed on us very, very quickly," said chief executive Ernie Garcia III in an earnings call, "and we shifted our priorities very, very quickly. And undoubtedly, that's been a difficult transition. But I think there's no doubt that it's leading to a more efficient company."
The results of that efficiency, he said, would show up "in the not too distant future" as used car sales rebound.
Company executives said they have worked to reduce their expenses related to selling cars, in particular reducing advertising spending. As the numbers of cars sold has dropped, though, the reductions haven't yet been visible in per-vehicle profits, they said. As the company works toward profitability, Chief Financial Officer Mark Jenkins said, the company had $3.9 billion in cash, available real estate and other liquid assets available to draw on.