Carvana Co., the once-high-flying online used-car seller known for its auto “vending machines,” announced late last week that it would lay off 1,500 employees, the second major layoff this year.
The Tempe-based company said Friday the layoffs would be focused on its corporate, technology and operations units. No further information was given.
The company shed nearly 20% of its workforce in 2022.
“All affected team members will have the opportunity to receive six weeks of salary plus an additional week for each year they have been with Carvana,” the company said in a regulatory filing. “Effected team members will also have the option to receive extended health insurance, receive an early vesting payment equal to certain previously granted stock awards, receive recruitment and resume assistance, and continue participation in certain other company programs.”
Carvana was launched in 2013 and its shares soared after an IPO in 2017 on expectations that the company could dominate the historically fractured used car market. The stock rose to nearly $377 per share in August 2021 as Carvana became one of Arizona’s most valuable companies before losses began to widen. Carvana’s shares have since lost 98% of their value and now trade at about $7 a share.
Earlier this year, Carvana, which occupies lakeside offices in Tempe Town, laid off 2,500 employees. As a result of the two job cuts, 4,000 jobs were lost from 21,000 full-time and part-time employees at the end of 2021.
“We believe these decisions, while extremely difficult, will help Carvana achieve its financial goals,” the company added in the statement.
Those goals don’t include short-term profitability, as the company has aggressively invested in advertising, expanded its operations to reach a broader portion of the US population, and built its logistics network. The logistics network includes overhaul and inspection centers as well as Carvana’s iconic vehicle machines, such as B. One in North Tempe along Loop 202.
An internal memo from CEO Ernie Garcia, reported by CNBC, said the company had failed to predict how declining used car sales would affect “everyone and the impact that would have on our business.”
Ironically, Carvana sold more vehicles in the first nine months of 2022 than in the same period last year — about 325,300 used cars and trucks compared to 312,200. But sales fell in the most recent quarter.
Part of the company’s problem was a sharp rise in interest rates on used-car loans amid rate hikes by the Federal Reserve to slow the economy and fight inflation.
Vehicles are more difficult to pay for for many people. Average interest rates on four-year used-car loans have risen from 4.8% in July 2021, around the time inflation began to rise, to 6.2% in October 2022, according to Bankrate.com.
Seth Basham, an analyst covering the stock for broker Wedbush, said the company still hasn’t shown any signs of stabilization and he feels the liquidity situation could be getting worse.
In a recent report, Basham said he remains a believer in the company’s business model, but added that Carvana’s “inflated cost structure” is designed to support much higher sales volume. He predicted that the company may need to mothball certain inspection/renovation centers or other facilities, sell some of its real estate holdings, exit unprofitable geographic markets, or take other cost-cutting measures.
Raising fresh debt capital could be difficult, he added.
Carvana reported a net loss of $781 million, or $7.88 a share, for the first nine months of this year, compared to a loss of $46 million, or 56 cents a share, for the same period in 2021. The Expenditures have increased, vehicle inventory has decreased, cash on hand has decreased, and both trade and long-term liabilities have increased.
Gross profit per vehicle sold fell to $3,237 from $4,526 previously, Carvana reported.
These numbers do not include materially higher SG&A expenses, which increased to $2.1 billion for the first nine months of 2022 compared to $1.4 billion for the same period last year – expenses, which the company is trying to stem with the recent layoffs.