LAS VEGAS — For Carvana, building scale is key to long-term success.
The used-vehicle retailer now is in 55 markets, CEO Ernie Garcia said at the Automotive News Retail Forum: NADA here. Most recently, Carvana added San Diego to its roster.
Why? Simply because it's a market, Garcia said. "Our goal is to go to as many markets as we can. San Diego fits that description."
So far, Carvana has opened in 11 markets in 2018. It plans to open in 30 to 40 more throughout the year.
At the end of last year, Carvana had 41 percent coverage of the U.S. population. Garcia plans to hit 55 percent by the end of 2018. And he believes the company can get to 60-70 percent eventually. "We're moving pretty fast," he said. "We have every intention of growing into as many markets as we can responsibly enter."
In the fourth quarter, Carvana reported a net loss of $47.2 million, but retail sales more than doubled to 13,517 vehicles. Traditional dealerships typically have low fixed costs and high variable costs, Garcia said. Carvana's business is the opposite. On each transaction, Carvana has low expenses and healthy margins, but the company still has a large pool of fixed expense.
"We have to invest in all this technology, a huge logistic network, the ability to ship cars everywhere, really large reconditioning centers. We have to invest in the scaling that we're doing," he said. "That makes the economics a little different where you have to get to a certain scale before it works, but your variable costs are really low."
The company is focusing on building its operating leverage, which means making enough gross profit per unit to cover the fixed cost, Garcia said.
Once Carvana scales the business and can more sufficiently cover that cost, Garcia is confident that the company will make an impact.
"If we do a good job executing from here, I think we are going to build something that's going to be really, really big," he said. "What stands between us and that future is our ability to execute at an ever-increasing scale and to continue to deliver great customer experiences at an ever-increasing scale. I think that gets harder every step in the game. As long as we do that, we're going to build something that's really large."