Fast And Furious: Used Car Sales Surge For Carvana During Pandemic

The automotive market is surging during the pandemic, and companies like Carvana are reaping the benefits. The company reported a stellar third quarter last week, as used cars and contactless delivery are driving the market.

Carvana, which sells both used and new cars, has been one of the main innovators in the space, with its high-profile vending machines in several major markets. By the numbers, in Q3 the company sold 64,414 units, an increase of 39 percent. Revenue totaled $1.544 billion, an increase of 41 percent; total gross profit was $261 million, an increase of 90 percent. In its four years of existence, Carvana has improved its gross profit margin by almost 12 percent and has grown unit sales by 10x.

“In addition, the third quarter also saw incredible operational achievements,” CEO Ernie Garcia said on the company’s Q3 earnings call. “The first and most notable of these was that we bought more cars from our customers than we sold [to] them for the first time in our history. This is an amazing accomplishment that was only made possible [by] the quality of experiences we deliver to our customers, the quality brand we’ve created, the infrastructure we are building and the herculean effort put forth by our team.”

In fact, for Q3, Carvana bought almost twice as many cars from its customers as it bought during its previous peak in Q1 of this year, and over three times as many cars as it bought in the second quarter. While the third quarter was above expectations, Garcia says the company will replenish its inventory and invest in technology for Q4.

“And then we think that the dynamics of the market that we’ve discussed in the past, the fragmentation and the relatively few players that really have the capacity to make large financial investments and build out a true eCommerce platform, suggests that’s not necessarily the area where we should be putting most of our focus,” he said on the earnings call. “We think that we offer the best customer experience, that we have the most scalable model and that we’ve got the capacity now through our balance sheet and also through our financial performance to be able to invest in our offering. And so we’re focused on us. We’re focused on execution. We’re focused on our customers.”

Used car prices are up 23 percent from a year ago, according to several sources. The demand comes from several factors. First, used car sales are displacing new car sales, partially because so many consumers have switched from other travel methods such as public transportation, ridesharing, trains and planes to avoid exposure to the virus. According to Kiplinger Personal Finance, stimulus checks and a shift away from spending money on dining out have also accelerated the market. Inventories of used cars were very low to begin with, mostly because most new-vehicle buyers are choosing pickups and SUVs.

“The strong demand will likely last until a viable vaccine gets widely distributed and the public’s health fears subside,” said Kiplinger. “When that happens, used prices may slide again. And it appears that prices may have already peaked; weekly transaction data show them edging down slightly since mid-August. But for now, they’ll remain elevated. So if you’re thinking about buying a new ride and trading in your current car, you should still have some room to negotiate a higher price on your trade-in.”