Incomplete car purchases canceled as Shift Technologies goes out of business, files bankruptcy

Shift Technologies Inc. listed $240 million in liabilities and $110 million in assets in a petition filed Monday in the U.S. Bankruptcy Court for the Northern District of California.

The online auto retailer filed for Chapter 11 bankruptcy protection after it failed in a monthslong reevaluation of business to secure additional funding.

Additionally, all vehicle purchase transactions started by Shift customers but not completed with full payment or finalized financing will be canceled, according to a "Frequently Asked Questions" document on the website of Shift's claims agent. Purchased used vehicles will still be delivered or can be picked up, according to the document. However, Shift's 30-day warranty for repairs and 7-day return policy can't be used, it said.

It is unknown how many customers are affected.

As for shareholders, that same FAQ document said it was "very unlikely" they "will receive anything on account of their shares. If it appears that the bankruptcy estate will have assets sufficient to make distributions to equity security holders, you will be notified."

Shift, which ran an online platform for buying and selling used vehicles, ceased operations at its last two physical locations in California on Friday, Oct. 6, the same day it announced it would file for bankruptcy.

Shift's long-standing profitability issues, cash burn tied to technology investments it made in 2022 and a shrinking liquidity runway put the company in increasingly dire straits this year.

"Unfortunately, as Shift continued to expend its available cash on technology development, capital markets in early-mid 2023 tightened and focused on profitability over growth, according to Shift's advisers, which, along with other factors impacting the industry, made it increasingly difficult to find capital to fund growth and operations absent immediate cash returns," Shift Technologies CFO Jason Curtis said in a declaration filed in support of the Chapter 11 proceedings.

An attempt by Shift from June through September to realign the e-commerce business to a potentially more profitable dealership model did not generate the necessary capital or help it attract more financing, Curtis said in the declaration.

Shift Technologies, of San Francisco, was co-founded by George Arison and launched in 2014. It went public in October 2020 via a reverse merger deal with Insurance Acquisition, a special purpose acquisition company.

Shares of Shift fell to 19 cents in afternoon trading Tuesday after also plummeting late last week.

The company terminated 120 employees last week ahead of the Chapter 11 filing, according to court filings. Twenty-four employees across operations, finance and accounting, human resources and technology were retained to facilitate Shift's wind-down, according to the company.

Shift estimated its costs to cease operations will fall between $4.1 million and $5 million, including $150,000 to retain remaining employees.

In his declaration, Curtis said "it was in the best interest of [Shift's] creditors to use cash on hand and cash generated by the liquidation of inventory through wholesale channels to provide the liquidity necessary to support the wind-down and the Chapter 11 process" rather than liquidating through a Chapter 7 proceeding.

Shift's largest creditor is the U.S. National Bank Association with an unsecured claim of $150 million.

In a regulatory filing published Tuesday, Shift said it expects to receive a delisting notice from the Nasdaq stock exchange, where it trades under the ticker "SFT."

Shift is represented by Keller Benvenutti Kim, a corporate bankruptcy law firm in San Francisco.

A meeting with creditors is scheduled for Nov. 7, according to a court filing. Judge Hannah L. Blumenstiel is presiding over the case.

Shift filing for bankruptcy marks a significant development in the online used-vehicle retail landscape, which includes its peers Carvana Co. and Vroom Inc.

All three of those retailers saw their sales growth hampered in 2022 as inflation and higher interest rates combined in part to keep more consumers out of the used-vehicle market. At separate points in 2022 and 2023, all three retailers disclosed that evolved macreconomic conditions forced them to adjust operations to prioritize profitability over growth.

In June, Shift hired dealership industry veteran Ayman Moussa as CEO to lead the transition to a dealership model "focused on profitable growth," Curtis said.

However, Shift's discontinuation of its e-commerce investment caused its business model to become "substantially less capital-intensive," Curtis said.

With its liquidity situation deteriorating, Shift sought more capital to see whether those changes to its operations would make it profitable, Curtis said. That did not pan out.

"Ultimately, the Company's noteholders were unwilling to provide additional financing, and the Company was unable to secure any additional source of capital," Curtis said in the declaration. "As a result, the Debtors filed these Chapter 11 Cases to begin an orderly wind-down."