Could Carvana Be Spiraling?

The entire auto industry is taking a hit. It does not matter whether we are talking about auto production, auto dealerships, or used car businesses, the industry is down and out, and along with the rest of them, Carvana is feeling the pressure.

With the nationwide inventory shortage, new cars are hard to come by. This has caused the demand for used cars to increase, prompting prices to grow to unforeseen amounts. Carvana, a company that thrives on selling expensive used cars, is struggling to adapt and compete. The only question now is: Can Carvana save itself from spiraling too far?

The Problem for Carvana

As is the case with virtually every vehicle manufacturer and distributor, low inventory and high demand has sent companies scrambling for control. Carvana is one of the few companies that are struggling to stop the flow of their depleting finances.

Carvana has reported to its investors a $439 million loss in the second quarter of 2022. It’s safe to say that being a Carvana investor might prove to be a loss for the time being. Is this too much for investors? Well, in this year alone, due to the high demand for used cars nationwide, Carvana has seen a 34% drop in profit per car. That’s a huge red flag.

Costs are Causing Profits to Crash

You might assume that this high demand for used cars is causing people to buy fewer cars, but actually, the opposite is true. Carvana has reported a 9% increase in sales in the last quarter. People are buying cars, and people are buying more from Carvana. So, what’s the issue? Is it the drop in profit per car? The answer is yes, but there is also another problem.

The other problem is that Carvana still needs to have its own inventory, and there are a number of ways by which they procure these vehicles. They often get them from trade-ins, direct purchases, and auctions. But, due to the inflated prices of our current auto economy, Carvana is forced to pay way more for these cars than they are accustomed to.

What hurts Carvana even more, is that their competition, auto dealerships, used car dealerships, and individuals, are seeing a fortunate profit from this current economy of inflated prices. Carvana would be seeing similar success, but it’s the fact that this is a seller’s market, and they are buying as much as they are selling.

What’s the Verdict

So, is Carvana really spiraling? The long answer is yes, and if they don’t find a way to combat their current struggles, then the company could be in for even more trouble in the future. This economy of inflated prices for used cars is not going away any time soon. It’s a seller’s market, and Carvana needs solutions. Sales may be up, but costs are sky high, and if Carvana can’t find a way to break even, they will find the future coming months to be similar to the last couple of quarters. It looks like the car vending machine company is in desperate need of maintenance.