Carvana adjusts search results to handle demand

Carvana has found itself caught between the seemingly insatiable demand many retailers are facing and the difficulty of fulfilling it during a pandemic.

The online used-vehicle retailer has found plenty of cars and trucks to sell and bought aggressively from consumers in the first half of this year. But getting the vehicles sale-ready and then delivering them and processing their title work has dogged the company, which reported a larger third-quarter loss this month.

"The explosive growth in buying cars from customers we experienced in the past two quarters also played significant constraints throughout our system in Q3," Carvana CFO Mark Jenkins said in an earnings call Nov. 4.

Jenkins said that midway through the third quarter the company began "metering" retail vehicles and cars bought from customers to allow Carvana's operational capacity to catch up with demand. To better manage retail sales volume, the company reduced the number of vehicles shown to customers in search results.

Carvana plans to increase its operational capacity in the fourth quarter "with an eye toward 2022," Jenkins said.

Asked to give more color on the situation, CEO Ernie Garcia told analysts on the call that buying more vehicles from customers leading up to the third quarter put additional strain on the business, on top of that already caused by the coronavirus pandemic, especially at Carvana's inspection centers.

"And then when we found ourselves a little bit behind, it was probably a little bit harder to catch up than it might have otherwise been given the unique hiring environment," Garcia said.

Carvana has made some progress, he added, making gains in customer care, logistics and operations at inspection centers in the last several weeks.

"I do think we're seeing improvement which is good," he said. "But we remain behind and we're working hard to catch up."

Meanwhile, Carvana was able to expand its available inventory to an average of 16,400 vehicles in the third quarter, up from 12,800 in the second quarter of this year.

Carvana added nine markets during the third quarter, which it said expanded its territory to covering 81 percent of the U.S. population.

Company leaders have said Carvana's operational capacity is a key growth driver. The company is on track to launch eight inspection and reconditioning centers by the end of 2022.

Carvana's revenue in the third quarter more than doubled to $3.48 billion, boosted by retail vehicle sales that grew 74 percent to 111,949. The company's net loss widened to $68 million, compared with $18 million in the year-ago quarter.

So far in the fourth quarter, Carvana has not "materially" pulled back on metering, Garcia said.

"The moves that we made to meter sales were real, and they were an impact," he said. "But the bigger impact is just the constraints that already existed in the system before."