Carvana Cuts 2500 Jobs Because the Car Market’s So Bleak
The company bet big on growth that didn’t come to pass, and is now facing the consequences.
It's been a tumultuous few years for the car market. Prices have spiked in new and used cars alike amid ongoing parts shortages for new production. Meanwhile uncertainty has reigned supreme against a global backdrop of pandemic and war. Online-based auto dealer Carvana is now feeling the pinch. The company has just announced plans to lay off 12% of its workers, as reported by the Wall Street Journal.
Carvana was founded in 2012 as a used car retailer focusing on an online-based experience. The company has grown in fits and starts over the years. The company had a disastrous IPO in 2017, but saw a surge in business during the pandemic as consumers shifted away from brick-and-mortar car yards. However, the company now faces serious headwinds during a difficult time in the used car market.
In internal emails viewed by The Drive, Carvana CEO Ernie Garcia III highlighted the conditions that precipitated the layoffs. The company had "grown extremely fast" in recent years, notably becoming the third-fastest company to reach the Fortune 500. "It has always been the right move to start building for growth well ahead of when we expect it to show up," noted Garcia, crediting this ideal for the company's success, adding that "This strategy worked for us every year until this one."
"All-time-high car prices are slowing sales to recession levels," Garcia says, also blaming high interest rates and inflation for dampening demand. Carvana has still managed to grow, notes Garcia, but significantly below its original projections. "Our team is bigger than we need and we can't be certain growth will rebound quickly enough to bring us into balance," says Garcia, noting that "We will have to say goodbye to part of our team."
Carvana's stock has been in a funk of late, falling 59% since it reported results to shareholders on April 20. Monday trading closed with Carvana stock at just $38.77, down from a high of $370.10 in August 2021. The company's sales don't bode well, either, with the company quoting a loss of $260 million in Q1 this year.
Internal communications go on to state that the company will pay all laid-off employees four weeks of severance pay, plus an additional week for each year they have been with Carvana. Healthcare will also be extended for 3 months for affected individuals.
The CEO's words are cold comfort to those at risk of losing their jobs, with the companywide email coming as a nasty surprise to many. One employee spoke to The Drive on the condition of anonymity, highlighting that the announcement came out of the blue. "There was absolutely zero talk about this before today," noted the delivery driver, adding that up until now, "the company has been in a constant, almost frenzied level of expansion."
"The hub I work at just recently split into two different hubs, with another location planned in the same 100-mile area within the next year or so," the employee told The Drive, noting the frantic pace of the company's growth. Now, that's all changed, with Carvana slamming on the brakes rather suddenly. "I do not know if I even have a job to return to," says the source, who started with Carvana in October last year. "As far as I know, I'm going to be let go as soon as I return."
As per Garcia's email, most of the impact will be felt by those in "operational positions." This would seem to concern primarily those workers in roles involved in customer service and processing vehicles, being those roles that are less necessary as sales volumes contract. Roughly 2,500 employees are to be laid off, making up approximately 12% of Carvana's total workforce.
Over-expansion is a common way for companies to come to grief. It's all too common in difficult trading conditions such as those seen recently during the pandemic and the resulting economic strife. It seems the company bet too heavily on the strong growth it saw as buyers flocked to the online marketplace as COVID fears scared customers away from brick-and-mortar lots.
The pain was only compounded by financing decisions the company made since. Expansion was fueled with a bevy of loans, and a whole $2.2 billion was spent purchasing the Adesa vehicle auctions business in a recent deal. It's left the company with plenty of expenses to deal with without strong sales to ease the pain.
The company hopes that in time, a broader industry rebound will push Carvana back into the black. In the meantime, it seems employees will bear the worst outcomes from this difficult situation. Those remaining at Carvana will hope the management team have the ability to right the ship before more jobs are placed at risk.
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