NOVI, Mich.- One week after Carvana announced first quarter revenues topped $3 billion, CEO and Co-Founder Ernie Garcia met with members of the Automotive Press Association to discuss the past and future of the used-car e-commerce juggernaut. The May 14 event included a tour one of Carvana’s distinctive car vending machines in Novi, Mich., including a demonstration.

Garcia kicked off the discussion with a look at the company’s 2012 start. “The goal of Carvana from the beginning was to try to build a different retail model that we felt would give customers a different kind of experience,” Garcia said. “They would be more in control of the whole thing; going through the online checkout process, get their financing, pick their car and schedule their delivery.” 

Carvana built its own logistic network, create more centralized inventory, give customers more selection while having more fixed costs and less variable costs which works out well at scale. Garcia said Phoenix “wasn’t the standard place” to launch an e-commerce car business. “We struggled to raise capital in the private markets; we were told ‘no’ by everyone up and down Sand Hill Road in Silicon Valley,” Garcia said.

The company got initial funding from used-car chain DriveTime and things moved fast. “We ended up going public in 2017, which is very early in the life of a company,” Garcia said. “But then we were lucky enough to get a decent amount of momentum. At that point, I think customers really liked out offering, at least a lot of customers liked to go online, without pressure and buy a car with a very broad selection.

“We became one of the four fastest companies to reach the Fortune 500. That was something we were extremely proud of because (of the difficulty) of trying to build out a totally different automotive supply chain with these big inspection centers where we recondition every car with a $1,000 labor and parts for each one, ship to the customer’s door and build an entire transaction platform.”

Garcia described this process as very capital-intensive relative to many other business models. Like all businesses, the 2020 pandemic was a “very scary moment” for Carvana. “Transactions basically stopped and there were questions whether or not people were going to buy cars for a while,” Garcia said. But within three months, people started “buying everything,” he said. Carvana’s e-commerce model put it in perfect position in the midst of a shutdown of in-person business. Carvana had built a great reputation and saw strong growth in the stock market; the company was cruising. “But I think as it often happens, when things go too well for a little bit, things started to cut against us,” Garcia said.

Rates were going up in 2021 and 2022, and car prices jumped during those years. Also, in February 2022, Carvana acquired ADESA’s physical wholesale auto auction business – including 56 sites – for $2.2 billion in cash. “We financed that with debt and then the capital markets tuned to where they were focused on profitability almost solely,” Garcia said. “It was really tough for a company that’s trying to grow at 100% and is capital-intensive.”

Media stories on Carvana during this period “were not super favorable, and it became a very difficult time for a lot of people inside the company,” he said. People who were used to hearing positive things about this hip company were now hearing more negative comments. “But we fought through that,” Garcia said. In 2022, it was hard to see a turnaround but by 2023, things started looking better and early 2024 the strong trends have continued, he said. “It has probably been the best period in our company life,” Garcia said. “I do think that doing anything worthwhile is very hard. The bigger of a swing you take – the more complicated the businesses you try to build – the more struggles you’re going to go through and the lower the odds are that you make it all the way through. “When you face that brutal pressure it’s no fun when you’re in it. But I do think it makes you better. It did make us a lot better.

“So the last quarter we were extremely excited to report that, for the first time ever, we’re the most profitable automotive retailer as measured by EBITA margin.

“It’s a goal we’ve had from the very beginning and we thought our business mode could support.”

_______

 Read part 2 of the discussion,"Carvana’s CEO Ernie Garcia Reflects on the ADESA Acquisition".

______________

*An earlier version of the article incorrectly stated Carvana’s Q1 revenue topped $4 billion. We regret the error.