Carvana’s CEO Ernie Garcia Reflects on the ADESA Acquisition

By Jeffrey Bellant May 23, 2024
In May 2022 Carvana bought Adesa’s 56 auction locations from KAR Global for $2.2 billion. In May 2022 Carvana bought Adesa’s 56 auction locations from KAR Global for $2.2 billion.

NOVI, Mich. – Carvana CEO and Co-Founder Ernie Garcia discussed the state of the company and the industry during an event with the Automotive Press Association here May 14.

During the conversation, Garcia discuss the company’s acquisition of ADESA, the auction chain.

In early 2022 Carvana shelled out $2.2 billion for ADESA’s 56 physical auctions. In Carvana’s initial press release announcing the move, the company stated “footprints are highly complementary and combining them extends the collective reach of the two businesses. ADESA U.S.’s existing and potential reconditioning operations can contribute approximately 2M incremental units to Carvana’s annual production at full utilization. Further, 78% of the U.S. population lives within 100 miles of either an ADESA U.S. or existing Carvana inspection and reconditioning center, meaning customers will have access to more vehicles with faster delivery times than ever before.”

At the APA event, Garcia talked about the reasons Carvana made the move to acquire ADESA’s physical auctions. “One, we really believe versicle integration is a big part of our ability to simultaneously give customers an experience they love, a lower price and build a business that has better economics,” he said. “It’s hard to do those three things at the same time. You have to build more to unlock those three things at once. Vertical integration is important. It means we can buy more cars from customers and unload them through the wholesale market to lower costs. “No.2, those facilities are enormous facilities that are very, very hard to get zoned.”

Garcia explained that Carvana’s 17 Inspection and Reconditioning Centers (IRCs) are what it uses as its e-commerce distribution centers which are similar to auction sites where Carvana sends the cars it buys. Those cars go through inspections determine what they need to do to prep them for retail sales.

“We put about $1,000 of parts and labor to every car,” he said. “We photograph it and then it sits there until it’s purchased. The it gets into our logistics system and ultimately delivered to our customer.”

Finding that type of industrial real estate close to city centers is difficult and getting it approved is even harder, Garcia said. By acquiring ADESA’s facilities, Carvana is well-positioned to recondition more cars. “That’s the hardest, most difficult, most intensive part of our operations,’ Garcia said. “So that’s what positives us to be eight times larger than we are today.”

This spring, Carvana announced it rolled out its IRC processes and software at two ADESA locations – Buffalo and Portland – something the company hopes to do at other sites. “Our goals have always been to be the largest, most profitable (retail used car seller) and to s4lkl millions of cars,” Garcia said.

The ADESA move is part of achieving those goals. “Our view is that building this system that has a different supply chain, is centralized and has more fixed costs than variable costs, then we can build an offering for customers that gives customers a broader selection, they’re in control and get (a car) delivered to their door with a return policy and build it to scale,” he added.

The challenge for Carvana was that after it had acquired the debt that came with the ADESA purchase, car prices when up and capital markets shifted.

Carvana’s stock at one point dropped 99%, but Garcia believes the company has weathered those storms and is in a better place by having pushed through them. “In the U.S. and international markets, over the last 20 years there have been at least 20 companies that have tried to build something like an e-commerce distribution system for cars,” Garcia said. “At this point, by very objective measures, we’re almost certainly the most successful by a very long way.

“I think our business is stronger than it’s ever been.”


Read part one of the dissussion, "Carvana’s Ernie Garcia Looks Back, Forward".



Rate this item
(0 votes)
Last modified on Thursday, 13 June 2024 10:27