A little more than a month ago, we brought you coverage of CarMax Inc.'s second-quarter earnings and surmised the softening used-car demand it warned about would also be an industry headwind felt by Carvana Co., a peer in the used market.
That proved correct last week. Carvana on Thursday posted quarterly results several financial analysts deemed abysmal. The online used-vehicle retail giant recorded a third-quarter loss of $508 million and reported that consumer demand for used cars and trucks is waning in light of interest rate increases and the period of general inflation that has manifested in 2022.
The company is preparing for those demand troubles to persist for the rest of the year. And it's not just Carvana that's bracing for challenges. Leaders of franchised dealership groups, too, find themselves grappling with changes in the used-vehicle operations they bulked up in 2021, when the used market was more robust and profits were stronger.
Vroom Inc., another of Carvana's peers, escaped a wider loss in the third quarter. It also said it took in significantly more money for each used vehicle it sold. But Vroom's revenue and the number of vehicles it sold online tumbled from 2021 levels — the result of the company choosing this year to zero in on getting its per-vehicle profit up.
Such pivots by used-vehicle retailers could become more frequent in the current quarter and in early 2023, especially as they look to lessen cash burn. For instance, the downturn in demand is far from the sole factor hurting Carvana's financial performance — it needs to further cut costs to have a shot at recovery, according to analysts.
I'll be attending Used Car Week in San Diego on Nov. 14-17. It'll undoubtedly be a prime opportunity to gather insight and commentary on this evolving demand situation and used market conditions overall. Industry experts and dealership leaders, are you concerned this hiccup in used-vehicle demand will be prolonged? Let me know by emailing [email protected] or talking with me in person during Used Car Week.
