Carvana’s Getting Pummeled On Wall Street. If Only We Could’ve Seen This Coming

By midday Monday, Carvana was trading around $7.50 per share—up from its morning low of around $7.10, but far from its Aug. 15, 2021, peak of more than $376. CNBC pointed out that shares were down by nearly 25 percent Monday morning, which prompted the trading timeout. Since last year, Carvana has had a bumpy ride: regulators have revoked licenses to operate in states such as Michigan and Pennsylvania due to delayed registrations, execs have reported lower-than-expected revenue, and a cooling economy has all influenced the slumping stock. 

But there’s more. Spurned by low inventory and high prices, used car shoppers now have another reason to delay their purchase: rising borrowing costs. Last week, the Fed hiked interest rates again, which was the third rate increase in the past year and another attempt to cool inflation in the U.S. That’s made used cars that were already at record highs even less desirable to buyers whose spending power was effectively kneecapped by higher borrowing costs. 

In response, used car prices have fallen for five straight months, according to Automotive News, which means it’ll be even harder for conglomerate dealers such as Carvana to make money for investors. All of the above would be considered “headwinds” to a softening market for used cars for months to come, with the eventual tailwinds looking something along the lines of a glut of cars no one wants to buy, aging and less efficient cars on the road for longer, a depressed automotive sector that employs hundreds of thousands of Americans, and/or layoffs. Or, in two more words: Deepening recession. 

It's almost as if someone should've told dealers long ago that hiking prices and bilking buyers with exorbitantly priced cars wasn't a recipe for long-term success. 

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