Carvana Expects Used Car Industry to Remain Challenging in 2023

Used car eCommerce platform Carvana said it expects the industry will face headwinds well into 2023, saying it plans continued cost-cutting measures to counter them.

In materials released Thursday (Nov. 3) along with its quarterly earnings call, Carvana Founder and CEO Ernie Garcia said the belt-tightening measures were needed to help the company weather the storm.

“We plan to continue to rapidly reduce expenses, to continue to put our focus on efficiency gains throughout every area of the company, and to continue to evaluate and test what levers we should pull to maximize the number of our more profitable sales and to minimize the number of less profitable sales,” Garcia said.

The comments came as the company reported a 3% decline in revenue,  an 8% drop in retail units sold, and a 31% dive in total gross profit in the quarter ending Sept. 30, according to a Thursday press release.

By comparison, industry-wide, used car sales were down 10% to 15%, Garcia said during the call.

In a letter to shareholders released Thursday, Carvana said the industry and economic headwinds pressuring used car sales have only gotten worse since the quarter ended on Sept. 30.

“We are building our plans around assumptions that the next year is a difficult one in our industry and in the economy as a whole,” Garcia said during the call.

The headwinds include three key elements: industry level demand, interest rate increases and vehicle price depreciation, Garcia said.

“Cars are an expensive, discretionary and often financed purchase that inflated much more than other goods in the economy over the last couple of years, and that is clearly having an impact on people’s purchasing decisions,” Garcia said.

Looking ahead, Carvana said in the letter to shareholders that it expects a sequential drop in the number of retail units sold during the current quarter due to the effects of reduced demand for used vehicles industry-wide and rising interest rates.

For 2023, the company is not providing an outlook, but said it expects the environment to remain difficult over the coming months and quarters.

“Like other companies we admire in history, our goal is to be made better by the challenges we face,” Carvana said in the letter. “On the other side of this period, we plan to be a better company as a result of having gone through it.”