John Combs, the vice president of commercial customer solutions at ADESA, shared some light moments with Carvana founder and CEO Ernie Garcia during a lengthy interview at the ARA Summer Roundtable on Aug. 21, 2024 near Dallas, Texas.
Photo: Martin Romjue / Bobit
Two years ago, Carvan CEO and founder Ernie Garcia appeared on stage at the Automotive Remarketing Alliance’s annual Summer Roundtable in Nashville talking in damage control mode after his company bought ADESA and then hit some financial skids.
He tried to reassure the audience that the used-car retailer known for its signature glass tower vehicle vending dispensers would turn around its will ride of losses and share price volatility.
“We guessed wrongly what this retail year would be like and found ourselves out of balance and had to make changes,” Garcia told the audience of vehicle consignors and remarketers on Aug. 17, 2022. “I’m a massive optimist, and I think to make progress in anything, you have to get knocked down many times, take the pressure, turn it around, and make it something positive. We plan to get up and kick back. Give us time.”
The company’s closing stock share price hit an all-time low of $3.55 per share in late December 2022, compared to an all-time high of $370.12 per share on Aug. 10, 2021.
After Wall Street analysts worried about bankruptcy, Carvana restructured debt, adjusted and revived its business model following a tighter post-pandemic used vehicle market, and further integrated the physical auction operations.
Last week, a more relaxed, ebullient Garcia took a bit of a comeback lap during this year’s ARA conference at the PGA Omni Golf Resort near Dallas. He is presiding over one of the most dramatic turnarounds in the used automotive and remarketing sectors. The Carvana stock share price closed at $159.78 per share on Aug. 23.
Rising Stability Lifts Carvana
The experience has left Garcia a bit wiser, as he interspersed his company’s outlook with some hard-learned lessons from his brutal episode in the publicly traded business world.
“The last couple years have been crazy,” said Garcia during a live stage interview on Aug. 21 with moderator John Combs, the vice president of commercial customer solutions at ADESA. “We’re leaning back into growth and are very well positioned.
“I think virtually everyone who tries to go into business at some point will go through tough times. There are few straight business success stories that go in a straight line. When you hear the stories from a distance, it always sounds sort of heroic. When you’re in those moments, it’s a real bummer because you wake up every day with a million things to do and everyone questioning. You see people around you, I hate to say, who kind of gleefully enjoy your difficulty, and that’s tough to see. You wish it weren’t true about the world, but it is.”
What is true in the financial world are the performance numbers, which don’t lie. Garcia cited Carvan’s 15% growth in Q1 and 33% in Q2.
Carvana’s Q2 continued its massive turnaround that had struck Wall Street with fears of bankruptcy in 2022, CNBC recently reported. Carvana’s latest quarterly financial report showed 14 cents in earnings per share, compared to an expected loss of 7 cents per share, and revenue of $3.41 billion, up from expected revenue of $3.24 billion. CNBC reported that Carvana expects 2024 to be a record year for the used-car retailer, including projecting adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA, of between $1 billion and $1.2 billion for the full year 2024, an increase from $339 million in 2023.
“The (ADESA) acquisition happened at time when we were in a good moment and doing good things,” Garcia said. “We had 10 minutes of celebration. Then everyone said it was the dumbest thing we ever did. Hopefully, we are in a place where people view it as not a crazy move.”
The ADESA purchase gave Carvana a complementary business that can supply a steady stream of used vehicles between retail outlets and large physical auction lots nationwide.
“Financials give a sense of performance, but not how a business will adapt to change,” he said. “Access to buying more cars is very important, and a natural fit for us. It’s hard to build industrial infrastructure. In many towns, groups of people oppose build out. Getting that as a vertical integration was a strong move.”
Scaling Up for a Normalizing Market
As part of the Carvana-ADESA integration, the company is adding its reconditioning technology and processes to its sites, Garcia said. “Cars need to go from their previous owners to the people who will sell them to the ultimate (next) owners. The more of those functions you can stack in a single location or single process, the more efficient the business can be. It means we can create more partnerships where we can dispose of cars in more creative ways. You can create a lot of opportunities over time.”
While Carvana sold 100,000 cars in Q2, the overall market saw 10 million used cars sold, which amounts to 1%, Garcia said. “That’s a lot for the second biggest auto retailer. I think we’re built for three times our current scale. With our existing reconditioning centers, real estate footprint, and conversions, I think we’re built for eight times our current scale. In the last two years, we have progressed in making everything in our business more efficient. Trying to make that progress where we’re also growing is hard. We walked for a long time, and then we chewed bubblegum. Now we get to walk and chew bubble gum.”
Garcia foresees an enduring market for buyers who prefer to sample and buy vehicles in person. “There’s also a lot of room for a business that just gives customers a different kind of experience with product selection, and no room to regret it if you made a mistake. Part of the value of that is someone will not wonder if they mess up. There will be a constant tailwind to the percentage of people who want to transact that way.”
Carvana’s goal is to satisfy that need in the market as quickly as possible, Garcia said. He added that not everyone will transition to e-commerce for vehicle purchases, so having the ability to scale across digital and physical transactions will ensure that a business works long-term for all types of customers.
Asked what now keeps him up at night after the last few tumultuous years, Garcia said “trying to maintain investment.”
“It’s trying to make sure we keep up the pressure of the last couple of years,” he said.
Companies need to be aware of their strengths and weaknesses and not let size bog them down in saying no too often to new ideas and innovations.
“I think companies early in life when they are building something new are good at saying yes, and not good at saying no. And then the reverse is true as companies age. You must be aware of what your weaknesses are and try to fight that. We’re trying to keep the intensity up.”
With the acquisition of ADESA, Carvana now can pursue a stronger presence in the wholesale vehicle market, Garcia said. “I think we’re well positioned because we now have a very robust set of ultimate distribution tools in our toolkit,” where the company can more readily shift vehicles among its distribution channels.
“We can buy a car that needs no reconditioning, and we can sell it at retail. We can buy a car that doesn’t meet our retail needs and can recondition and wholesale it. That puts us in a good spot.”
Innovations and Advanced Ahead
Garcia outlined two key goals to build on the two-year comeback:
- Build a high-quality digital solution with strong buyer tools and ambient seller tools that targets all their nuanced preferences. Simplify the challenges on the buyer side.
- Build the best marketplace possible using its buying and selling channels and invite buyers once it’s fully established. The goal is to be a partner for natural sellers of cars more efficient than any other partner.
To meet demand for used electric vehicles, Carvana plans to invest in the market long term as the market passes through the cycles of hype and negativity.
“Our view is that EVs are a real thing that are here to stay,” Garcia said. “I think we’re at an early part of the curve and it will grow over time. It’ll go through difficult times, but everything does, and it takes effort.”
The emphasis should be on checking and assessing EV batteries while providing consumers with the information on how to operate and evaluate EVs, he said.
Carvana is also focused on building digital and data tools to try to intelligently buy and sell cars in the wholesale and retail channels. Among the information points to compile for roadmap, Garcia cited:
- How do we learn more about that car?
- How do we build all kinds of algorithms to assess the value of that car?
- How do we get more data to inform customers when we’re buying or selling a car?
- How do we make smart decisions in that moment about what the floor price should be and what price we should take?
“Our biggest asset is that we live in the shoes of our customers every day. Let’s think about things that we want and make those available to our customers.”
