Why Did the Online Used Car Auto Retailer Carvana Fail?

Once the golden child of ecommerce, Carvana’s failure should serve as a cautionary tale for online retailers.

Throughout 2020-2021, Carvana’s online-only model was perfect for pandemic-weary consumers. Supply chain shortages that left new cars in limited supply and a country still sequestered at home created the perfect atmosphere for the online-only used car retailer to thrive.

But lawsuits, consumer complaints, floundering sales, rising interest rates, layoffs and the loss of more than $1 billion this year alone have left many wondering what happened to the wondrous wunderkind of the used-car world?

According to Benjamin Goh, managing partner at BCG, Carvana may have been overwhelmed with its exponential success and forgot to put on a safety belt.

“Carvana took on the pandemic tsunami waves that swept consumers from onsite to online and grew exponentially,” Goh said. “The economy is as unpredictable as the pandemic tsunami, and the one thing that all businesses wanting to survive and sustain is to be able to accurately predict and proactively react by being lean and agile.”

Since August 2021 when Carvana’s stock reached $360 per share, it’s took a deep dive last week to just $6.80 per share — a decline of approximately 98%. It was back to $7.71 Thursday, Dec. 1. In May, the company laid off 2,500 team members — 12% of its total staff and in November saw another reduction of 1,500 additional workers.

David Meerman Scott, author of 12 books including “The New Rules of Marketing & PR,” doesn’t believe the company’s current situation reflects a failed future.

“A company’s stock price is a visible indication of what people think of the company at that time — yes, the stock price is down, and sales projections have been lowered; however, this does not mean the company has failed,” Scott said. “Apple closed at $0.04 on July 8, 1982, and is trading over $140 today.”

What else can we learn from Carvana’s current financial undoing?

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The Carvana Concept

Founded in 2012, the Phoenix-based company has been touted as the “Amazon” of used cars and known for its nearly three dozen tall, gleaming car vending machines across the country. With nationwide expansion and consistent gains in market share, by 2020 Carvana became the second largest seller of used vehicles in the US.

The concept behind the company is built on making car-buying simple. Instead of roaming a car lot and dealing with a salesperson, consumers peruse their 100% online marketplace — which as of the date of this article listed just under 55,000 vehicles. After purchase you can elect to pick it up in person — or the company will deliver it right to your door — many times offering next-day delivery and all with a seven-day, no-questions-asked return policy.

But inflation and the threat of recession have made consumers considerably more cautious, and Carvana’s not immune.

Related Article: Is Ecommerce the Antidote to Ongoing Retailer Challenges?

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