Carvana to Cut 2,500 Workers

Online car dealer Carvana will be laying off 12% of its workforce after closing a deal to expand operations, a report from The Wall Street Journal (WSJ) said Tuesday (May 10).

According to Ernie Garcia III, CEO, the company had overshot its growth strategy. That will cost around 2,500 layoffs.

“It has always been the right move to start building for growth well ahead of when we expect it to show up,” Garcia wrote in an email to employees. “This strategy worked for us every year until this one.”

The WSJ report notes the macroeconomic factors that have hit the retail market for cars, including inflation, rising interest rates and supply chain hangups. Thus a need to adjust the head count in order to balance the sales volume and the staffing levels, a Carvana spokesperson said.

WSJ writes that Carvana’s sales fell for the first time ever in the first quarter, with the company seeing a net loss of $260 million, with shares falling 59% since the company reported results in late April.

Carvana’s business model offers an almost entirely online shopping and selling experience and saw a glut of more business during the pandemic because of the lack of people shopping at brick-and-mortar dealers.

The company saw the expansion through with low-cost borrowing. It leveraged its balance sheet to fund a slow expansion, with much of its gross profit getting booked through accounting gains on sale from the auto loans it generated before selling them to investors. That made it unique compared to many peers.

The company’s downturn could be compared to other pandemic hits, including fitness company Peloton and streaming giant Netflix — both of which got more subscribers when everyone had to stay home.

Carvana’s decline came in what PYMNTS said shouldn’t have been a surprise, with a “perfect storm” of internal production delays and outside macroeconomic factors making things challenging.

Read more: Carvana Crashes Into ‘Challenging, Difficult, Deteriorating’ Environment

The company still had a year-on-year comparison that was good as of late April, but its fall from a Q4 peak would likely indicate the troubles in the auto market, PYMNTS wrote.