[hn_throwaway_99]

I bought a used car from Carvana before the pandemic, and this is pretty sad news to me because after that purchase I vowed that all my future cars would come from Carvana. The buying experience was simply excellent for me, and I couldn't be happier with the car I bought. I figured I probably could have gotten a comparable deal slightly cheaper somewhere else, but I would have wasted a ton of time, and still would have crossed my fingers that I wasn't buying a lemon - any slight premium I paid to Carvana I felt was totally worth it.

I hope they can fix their financial issues (sounds like they just "bought high and are selling low") and their operational issues (in some places word got out that it was cheaper to just "buy" a Carvana car and then return it < 7 days rather than getting a car rental), because, at least for me, their purchasing experience was great.

[phphphphp]

The good experience you had early on and the bad state of the company now are closely linked.

The story is always the same with this type of company: take a mature industry that is profitable on a unit basis because it’s boring and unpleasant, then build a narrative around some strategy to make it exciting (giant vending machines!) and get buy-in to spend huge amounts of money in pursuit of the narrative but eventually discover the only way to be profitable is to do what the mature industry players already discovered — but now you’ve got so much debt to service you have to cut even more corners and somehow manage to spend billions on becoming a worse version of what already existed and whatever goodwill you earned is burned.

There’s lots of room for businesses to improve on the boring legacy industries with low margins — like car buying and selling — but it requires careful iteration, it requires taking the established understanding and then building on it. Subsidising the cost of good-but-unprofitable service using investment dollars (Carvana was losing thousands per sale pre-pandemic) doesn’t build a sustainable business unless it’s part of a strategy.

[gmd63]

I think you can generalize even further and say that this story applies to most companies flooded with investor capital. Take Uber for example. The VC subsidies convinced a significant portion of people to upend their lifestyles and attempt to make money in an ecosystem where prices were artificially juiced by VC money.

It's ironic that free market types are completely for subsidies when the private industry does it, although public and private subsidies both have issues.

At least government subsidies have a benevolent intent usually. VC subsidies are usually about hiding the true market value of a product to attract customers who otherwise wouldn't have shown interest until it's time to crank the money milker.

[dehrmann]

> The VC subsidies convinced a significant portion of people to upend their lifestyles and attempt to make money in an ecosystem where prices were artificially juiced by VC money.

People didn't seriously upend their lives to drive for Uber until they retire. The people who were hurt by Uber were people who bought taxi medallions and suddenly found themselves competing with unlicensed taxis.

But on that point, as much as it sucks for them, their monopoly status meant the service was overpriced and didn't innovate. Uber might have been underpriced when it was subsidized, but it's still cheaper than taxis and makes rid hailing easier. Don't forget that even after the reality of things set in, Uber is still a $50B company. There's a real business there.

[beckingz]

It's the same price as taxis nowadays.

[bnjms]

Yes but many markets didn’t have taxis before ride sharing. Now we do.

[mbreese]

> VC subsidies are usually about hiding the true market value of a product to attract customers

A more benevolent reading of this is that the VC money is used to make the product more affordable at small scale. Many times products become cheaper/affordable at larger scales. Young companies use the VC $$ help to get them across that inflection point.

This logic breaks down when the product cost doesn’t get lower with more scale. Customer service oriented companies usually fall in this category.

[ljw1001]

A less benevolent take is that VC money is primarily used to buy market share by selling below cost until other competitors exit and the company is left with a monopoly.

[hgdfhgdfhgf]

"It's ironic that free market types are completely for subsidies when the private industry does it, although public and private subsidies both have issues."

This analogy is strange. Free market types aren't against private investors throwing private money at bad investments nor would they want any regulations against it.

"At least government subsidies have a benevolent intent usually."

Government subsidies aren't known for wasteful spending? They don't hide the real value of a product (like healthcare)?

[gmd63]

Whether an VC firm engages in subsidies for its clients or whether a government engages in subsidies for its electorate, money is being spent to distort market prices and that adds friction to accurate market pricing. It's weird to identify issues with the tactic and then arbitrarily say one entity doing it is bad when its OK if the other one does it.

If the government damages the economy with subsidies, those responsible might have more difficulty getting elected. If a VC firm dumps a juiced bag on S&P index fund buyers while causing a bunch of trouble for taxi companies and first time homebuyers, are any of their clients going to be pissed? My guess is they'll probably congratulate them on a job well done.

[kodyo]

It's none of my business when rich people waste their money. It is my business when the robbers and murderers in the government waste my money on my behalf.

[gmd63]

The government most of the time is acting on the behalf of the people who elected them. There are plenty of rich people who have stolen their riches. Neither is a perfect "voice of the people" or "true meritocracy"

[Apocryphon]

> Free market types aren't against private investors throwing private money

They're free to do so, but isn't it cheating when it undercuts competitors while propping up unsustainable businesses in the long run? Subsidies that support predatory pricing don't sound fair.

[robertlagrant]

Cheating at what? If you sell me your house for $1 then have you "cheated" all the other house sellers? What have you accomplished by this "cheating"?

[ElevenLathe]

Libertarianism treats the market as a game when it suits (i.e. when other people are "cheating") and as a natural law the rest of the time (i.e. when other people want to change the already-artificial rules of the game via politics).

[gmd63]

There really should be a law against this. It's jarring to the economy to confuse people with artificial prices when your sole goal is to snap a customer base into some long term reliability on a platform or product that isn't necessarily any different after the subsidy runs dry and it needs to become self-sustainable.

[hgdfhgdfhgf]

Why should there be a law? People benefited with cheaper taxis and VCs lost their money

[gmd63]

when you skew the incentives in the economy such that people focus on developing skills that are based on artificially juiced things that aren't actually that valuable (see Axie Infinity) it's bad for folks' livelihoods long term

[ojbyrne]

VCs lost other people’s money. I think that bill has yet to come due.

[hn_throwaway_99]

I'm not really sure I agree with your argument. It seems quite clear that what has really contributed to Carvana tanking over the past year was they vastly mispriced their product. What happened to Carvana is essentially exactly what happened to other companies that misjudged the effect of the pandemic, e.g. Zillow with their bad experiment with house flipping (paid too much for houses) and Bright Health (vastly underpriced their insurance due to impact of COVID).

But I want to emphasize, I would have gone to Carvana even if it were considerably more. The trusted, online-only buying experience is just something I'm totally willing to pay for, especially given how extremely awful the normal used-car buying experience is.

[phphphphp]

Depending on exactly when you bought your car from Carvana, Carvana likely lost between $2,000 and $5,000 on your purchase. Carvana has never made money on selling cars. If you're willing to pay $5,000 more for a used car because you'd like good service, then there are a great deal of options available to you. The simplest option is to go to a reputable dealership that focuses on customer service (which have existed and continue to exist!) or you could find a legacy player that is moving into the space. Elsewhere in this thread, someone mentioned that they recently had a great experience with CarMax.

At its core, my argument is that there is a sweet spot in which you can get great service from these "boring industry + technology + money" companies but that's because they're actively pursuing good customer service at any cost with no consideration for making money. As soon as the company (or its investors) realise this behaviour is unsustainable, they forget all about their narrative and go all in on making money -- which is when the quality of the service slips.

The amount you pay to Carvana (more or less than you'd pay elsewhere) doesn't have a relationship to the quality of service you will receive, because it's not a "normal" business.

There can be positive consumer outcomes from companies that approach business like Carvana: in the short term, customers get investor-subsidised products, and in the long term, other players in the industry get to learn from consumer reception (e.g: CarMax probably learned about demand for higher quality service from what Carvana demonstrated early on) but Carvana specifically is doomed to failure because it isn't a sustainable company that made a bad decision during the pandemic... it's been unsustainable its entire life.

[markatto]

Why do you think the unit economics of Carvana have to be worse than a traditional dealer? Maybe they have to do more shipping of vehicles around, but they are less reliant on storefronts/sales staff. It seems likely to me that they overspent on marketing/gimmicks/badly timed top-of-market inventory, but that doesn’t mean that the business model fundamentally can’t work.

[phphphphp]

A higher cost higher quality service can succeed, but that's not the Carvana business model. The Carvana "business model" was "sell as many cars as possible and work out the economics later" and it's now "try to lose less money by any means necessary" (including by sacrificing quality of service).

I am not theorising about their costs, rather, I am referencing their own financials. Per their financials, they must achieve >$4,500 in gross profit per car sold in order to break even on a sale because the cost of providing their service is around $4,500 per car. As far as I know, they have never achieved this and they have only come close during periods where the second hand car market was at its most ridiculous supply-chain induced peaks.

You could start an online second hand car dealership today, with the same online purchasing that Carvana offer, and a better quality of service, and build a great business with great unit economics... if that was your strategy from the first day. Many such companies exist! There are lots of upmarket car dealerships that'll give you excellent service -- and it'll cost you less than $5k over market.

Carvana can't just undo a decade of bad mistakes, they can't just switch from "losing money" to "making money" because every foundational decision about the business was made in the context of "who cares about money, we want growth". You should not think of a company as an implementation of a business model, a company is so much more. Carvana has something like 20,000 employees: at that scale, radical change is basically impossible.

[rhaway84773]

You see this with airlines.

People keep complaining about how flying has become so much more unpleasant.

But other than a small minority, the customers almost always pick lower prices over any improvements in service.

And the same is probably true for buying a used car. Folks may talk about how the experience is poor, but at the end of the day price is what will drive their purchase. So whoever gives the lowest price, which often translates to a worse experience, will succeed in the marketplace.

[jacquesm]

> Subsidising the cost of good-but-unprofitable service using investment dollars (Carvana was losing thousands per sale pre-pandemic) doesn’t build a sustainable business unless it’s part of a strategy.

Unfortunately that summarizes a fairly large fraction of the presentations aimed at VCs.

[friendly_deer]

I was pattern matching Carvana to a company called Sidecar[0] this summer when I heard my friend say he bought a car for something like $5k less than any dealership in town was offering it for.

Sidecar was the "3rd company" that did ride-sharing in my city in 2014-2015, after Lyft and Uber. Somehow they were selling rides from any point in the city to any other point in the city for $1. I suppose it was getting subsidized by VC money; and I took probably $500 worth of rides for a year or so until it shut down.

[0] https://en.wikipedia.org/wiki/Sidecar_(company)

[tristor]

I think you could generalize much further and just say this is what happens to companies that don’t understand the basic principle of CAC to LTV ratio. If it’s negative, when the funny money stops, it’s gonna be a rough ride.

[BeFlatXIII]

I wonder what we can do as consumers to convince investors to make stupid decisions to subsidize unprofitable industries so we can enjoy cheap prices.

[avalys]

Yeah, exactly. "I loved Carvana because I bought a great car from them at a better price than the legacy players!" and "I loved Carvana because they bought my used car at a really good price!"

Guess what? Buying cars for too much money and selling them for too little money means they go out of business.

[maria2]

> "I loved Carvana because I bought a great car from them at a better price than the legacy players!"

That's literally the opposite of what the GP said:

> The buying experience was simply excellent for me, and I couldn't be happier with the car I bought. I figured I probably could have gotten a comparable deal slightly cheaper somewhere else, but I would have wasted a ton of time

I mean this politely, but did you really read what you were replying to?

[bluedino]

I think he was quoting the typical Carvana customer, not the parent poster

[dragonwriter]

> That's literally the opposite of what the GP said:

Its not, though. Its true the upthread poster focussed on “buying experience” not “price”, but the adverse parts of the typical used car buying experience are a highly evolved optimization for drawing people in with advertised prices while optimizing actual prices without driving buyers off. Carvana’s better buying experience is neither “opposite of” nor even orthogonal to their failure to optimize price, its a direct consequence of them deciding they didn’t need to.

[015a]

That's... not what anyone is saying. I bought an Audi from Carvana. It was more expensive than anyone else (~2-4% more). The price they paid for my trade-in wasn't as good as some competitors. I did not interact, in any way, with one of their vending machines. I'd still do it again.

It was a totally hands off experience; I will pay extra to not be talked to by someone. The checkout wizard was nearly as easy as buying something on Amazon. Which car? Enter your bank account number and social security. Agree to this loan rate. Sign over power of attorney so they can get your first year of registration and plates taken care of. They drive up to my apartment building; drop it off; "take it for a spin, I'll wait"; come back 30 minutes later; looks awesome; done.

I've taken that car to the local Audi dealer for service. They upsell you on everything. They pressure you. "Hey, while you're waiting, why not take this new 2022 A4 for a spin, no problem man my treat." "Yeah your car is in great shape; we could give you $15,000 for it right now, that'd take care of your down payment on this new one, its nice isn't it, don't worry about the monthly we can discuss that later" Just stop talking to me. I will pay so much more to not be talked to (and, really, compared to most dealers nowadays; its hard to say if Carvana is even "more expensive").

I feel extremely, EXTREMELY, confident in saying that this attitude has sold Teslas to three people in my bubble. You can start the process to buy a Tesla with Apple Pay. Seriously. Their new delivery process involves ZERO people; you drive to the store, the app tells you the ID of the car which corresponds to a piece of paper hanging in the windshield, you walk around the parking lot looking for it, if there are issues then people get involved; otherwise you drive away. That's it. I am buying a Tesla right now, even though I rather like the Mach E, because they make it so dangerously easy, and I have no clue how to buy a Ford. What's their delivery estimation? Is the price quoted on the site what I'll actually pay? Do I call someone? God, I gotta actually talk to someone? I gotta drive to the dealer? In person? Screw that, Tesla makes it easier, they get my $60,000.

Carvana made mistakes. But their model wasn't some VC abbaration like so many SV companies. They actually struck on something new, in an industry that needed that innovation, and that discovery has since (or maybe, in parallel) been applied by other companies in the industry. They screwed up, but I'll miss them.

[rsj_hn]

This is what I was saying before on here (and getting downvoted). Carvana's value add was selling used cars to people who don't like the experience of buying used cars. It's a good idea and someone else can take their place.

The problem with Carvana was that by offering auto loans to buyers as well as taking out loans to buy cars from sellers, they became excessively levered in a time of rising interest rates and falling demand for used cars. On the upswing they massively invested, thinking this was business success and not shocking leverage, and the downswing wiped them out.

Whoever the carvana replacement is going to be, they should subcontract out the business of offering auto loans and they should borrow less to fund acquisition of cars, because the auto business is cyclical and they need to be able to survive the downturns, which requires less rapid growth during the boom. But the overall business model can be fixed, even if Carvana can't.

[ghaff]

And going into a dealer with cash and buying a car at list price and taking the offer for a trade-in--all with minimal haggle--really isn't a terrible experience in general. I bought a new car over the summer which wasn't immediately available but otherwise was a pretty straightforward transaction.

The pain is that people get pulled into negotiations that mix in a bunch of different things (purchase price, trade-in, financing, add-ons) and it's all a bit more than they can comfortably afford.

[Karrot_Kream]

That's still a lot of work. If I have cash for MSRP why do I have to deal with "minimal haggle"? Can I not just buy the asset? There is definitely an audience of people who know what they want and how much they want to spend and Carvana is able to meet it. I think there's definitely more demand for effortless purchases than just CarMax.

I bought an electric car recently and only put up with the minimal haggle of an MSRP cash deal because I was on a sabbatical and had more time than usual. But my partner and I were ready to go for Carvana before my sabbatical or if we couldn't find a dealer willing to stay low-bullshit with us. I ended up calling 6 dealerships and asking my partner to clear her evening just for the one dealership that offered us a low-bullshit deal.

[015a]

I can't speak for how Carvana operates today, but when I bought my car years ago the loan was subcontracted through some unrelated financial provider (Go Financial, now Bridgecrest). I remember being kind of annoyed at this; that I wasn't just signing in to Carvana's website to pay. But, its fine.

I think Carvana did make mistakes; but I also think the industry as a whole is very deeply suffering right now. And we only hear about Carvana because they're a VC SV darling.

[ShredKazoo]

>Whoever the carvana replacement is going to be, they should subcontract out the business of offering auto loans and they should borrow less to fund acquisition of cars, because the auto business is cyclical and they need to be able to survive the downturns

Alternatively, could they hedge their exposure somehow?

[allthecybers]

> I feel extremely, EXTREMELY, confident in saying that this attitude has sold Teslas to three people in my bubble. You can start the process to buy a Tesla with Apple Pay. Seriously. Their new delivery process involves ZERO people;

My Tesla was ordered online (Apple Pay) and dropped off at my driveway. The only human interaction was the friendly Tesla delivery associate that had a couple papers for me to sign.

Audi, Volvo and Mercedes all had people trying to sell us last years model, adding packages we didn’t want or completely out of inventory on the vehicle we did want.

It’d be great if the Carvana sales model could be adjusted to market pricing, so the customer experience is the same but would be a profitable business.

[listenallyall]

I think this is only a fair comparison if you disclose the waiting time between ordering the Tesla vs delivery.

The Audi, Volvo and Mercedes dealers may have been directing you at sub-optimal cars, but they were available to drive off the lot that day. If you're willing to wait 3 months, you can certainly order the latest Audi or Mercedes model with the exact specs and options you want. You can even pick it up at the factory in Germany and take it for a spin on the Autobahn.

[FireBeyond]

> My Tesla was ordered online (Apple Pay) and dropped off at my driveway. The only human interaction was the friendly Tesla delivery associate that had a couple papers for me to sign.

Did you get to inspect the vehicle before you signed the papers? Have heard numerous stories about that, where people either don't get a chance to do so, or when they do find concerns, are pressured by the delivery associate to accept it, "and we'll fix things at the Service Center".

Similarly, my Audi dealer has never tried to run the numbers on trading my car in when I've been in for a service visit, and the only vehicles they've tried to put me in is a loaner vehicle if the service time will be 2 hours or more (and unlike Tesla, they -always- have a loaner for you, even if it's one from the lot).

[jjav]

> Enter your bank account number and social security.

Really? That would be a 100% show-stopper for me. They absolutely don't need to know such highly private information.

I'll stick with cragislist and paying cash, which is how I've bought every car I've bought in the last ~16 years.

[fragmede]

Don't worry, they don't really need your SSN to pull your credit report anymore.

[epa]

Oh no, talking to someone

[015a]

I love talking to people. I don't like being talked to.

[bombcar]

Remember the bad old days of having to dodge hordes of salesmen just to try to buy some computer parts?

[dimmke]

I loved Carvana because I bought a car from them for about the same price I’d pay at a dealership but it was all online and I didn’t have to feel like I was getting swindled at any point.

The experience of buying a car at a dealership is a fucking nightmare. It’s awful. It’s the worst customer experience you can have in the United States.

There’s been some serious issues with the used car market fluctuating over COVID but it’s very reductive to now say “oh they were bad the whole time just another unprofitable unicorn”

[jrnichols]

I'm old enough to remember iMotors and how it too made the online car buying experience decent.

Carvana has done the same thing, 20 years later.

Car dealerships, for the most part, have not evolved at all or even tried. The experience is still a huge pain in the ass, and they know it.

[tptacek]

For what it's worth, I felt the same way about Carmax, last year. Bought online, they drove the car out to me, and when a better trim of the same car popped up on their site 2 weeks later, I just traded it sticker-for-sticker no questions asked.

I'm sure I didn't get close to the best price, but I got better than dealership sticker for the make/model/year, and I lost zero time to the transaction.

[hajile]

Just one car auction company (a subsidiary of Cox) controls 80-90% of the market. If a dealer avoids junk, ungraded cars, then the quality is very standardized. As a result of a completely centralized pseudo-monopoly, actual acquisition cost is set to an extreme degree (car auction price ranges are so tight that top and bottom bids are usually within a hundred dollars of each other from very cheap to very expensive vehicles). In turn, this means that local pricing is going to be based on other stuff like time on lot (more time = more payments and interest), lot space cost, sales cost, etc)

Places like Carmax buy a car, mark it up $2k, and sell it making most of their money on financing and warranty/service stuff. They mark vehicles down something like $500 each month for two months then put it right back on the auction if it doesn't sell (so you'll generally get better deals from vehicles that have been on-lot a while). This is why they refuse to negotiate price.

You may get a slightly better price than the dealership, but not by much when you consider every single factor.

If you want the best possible deal, know the car you're looking for and offer a fixed finder's fee to a mom and pop used dealership to buy it for you. A lot of these smaller dealers will give you a good, fixed rate because it's guaranteed money to them without that normal overhead. It may not be strictly allowed (due to NDAs and such), but some may even allow you to help pick out the vehicle to bid on.

[tptacek]

Like I said, I'm well aware that I'm not getting the absolute best price at Carmax; that's part of the premise. What I am getting is a month to drive the car and swap it for any other car, or a refund. That's hugely valuable.

[CobaltFire]

Coincidentally this arrange to bid is exactly the process most military moving to Japan use with local mom and pops. Works excellently.

[faddypaddy34]

I have bought almost all of my cars from CarMax in the last decade. Even going into their dealerships in person is not a typical experience. There is no negotiation on price and the only "upsell" was their extended warranty. They are also hemorrhaging money currently and hopefully don't go the way of carvana.

[theGnuMe]

I bought through carmax and I call it dealership lite. They tried to finance me even though I already had financing (and I said no) and pushed the extended warranty pretty hard. It is like $5k for 150k miles. I've heard you should buy it if you go for a BMW, jaguar or other higher maintenance car.

[GekkePrutser]

I wonder if it's possible for these concepts to really go big.

The problem is, there's a lot more lemons on the market then there's great deals. Nobody wants the car that doesn't start twice a week or that's been in an accident and has its chassis skewed.

These sites start out by promoting seller karma or something but even the best sellers have lemons to get rid of. At the start they probably just sell them elsewhere to keep their rating high. Eventually as these sites get so big you can't avoid them, the quality will inevitably drop because they capture too big of a market which just includes a lot of crap.

At the same time investors will want to see that exponentially skyrocketing line continuing so they'll be pushing to cut corners left right and center just as things get difficult.

I don't know Carvana as I don't drive much anymore but I assume the same story supplies here at least in some ways.

[ethbr0]

Aka the AirBNB problem. In a nutshell, that you can't have a high quality growth company forever in an industry with a fixed supply of high quality items.

Initially, you grow like crazy and with great user reviews, as you're able to pick and choose the highest quality items.

Unfortunately, at some point you exhaust the supply at a given quality level, but your valuation mandates continued growth.

So you lower your quality requirements to obtain more supply, which only buys you a bit more time until you hit the next supply limit.

The only winning move seems to be stay private and accept there's a near-term cap on your revenue growth, after which you will grow much more slowly (at the natural supply expansion rate).

[ncallaway]

> The only winning move seems to be stay private and accept there's a near-term cap on your revenue growth, after which you will grow much more slowly (at the natural supply expansion rate).

Or go multi-brand, and introduce cheaper brands for the lower quality properties, to maintain the goodwill for the higher quality brands. Many hotels do this with many different brands under the same organization that segment their customers on price and quality expectations.

I always thought that Uber/AirBnB etc should be more aggressive in creating more brand separation between their cheaper options and their higher quality options.

[vel0city]

I recently stayed in a hotel that was an example of how extreme the brand split of various hotels was. It was one building with three different brands operating out of it. One check in counter, one guest lounge, one gym, etc. Three different elevator groups though; one for each brand. Ultimately all the rooms were practically the same, but the trim was a little different between the brands.

But hey, if you feel that attached to a Hampton Inn as opposed to a Home2 or a Hilton Garden Inn I guess it makes sense. It's all the same to me though and seems like just a waste of paperwork and administrative tasks to continue the facade of three brands in the same building.

[ghaff]

I just saw that for the first time with a Residence Inn I booked where they said to check-in at the adjoining Moxy. In that case though the rooms probably are different.

[ethbr0]

Uber and Lyft essentially did that (Black/Lux).

AirBnB absolutely needs to, given the vast quality range of their current supply.

[GekkePrutser]

> So you lower your quality requirements to obtain more supply, which only buys you a bit more time until you hit the next supply limit.

And at the same time you start burning all the goodwill that make you so popular to begin with.

Thanks for explaining it more clearly, I don't really have a business head.

[ipython]

Uber is the same way. At first it was novel and driver pay was heavily subsidized so you had high quality drivers with nice cars. Over time the price for riders increased, driver pay decreased, and driver quality also decreased.

[kreitje]

I bought one from them about 3 months ago and it was excellent.

I couldn’t get a local dealership to give me the sticker price of a car on their website without showing up in person. I expected all the extra fees they throw in to be hidden but all they would post was MSRP and to call for the price. I call and they pretend to not know the car I am talking about and need to go there to see the specific car. This was multiple dealers.

Carvana though showed me the price, shipping if any, taxes, tag, title before I even tried to buy it.

[moralestapia]

The problem with Carvana's valuation is that car dealerships run on thin margins. It's very hard to make billions out of that.

[SoftTalker]

This is the problem when SV startup approaches hit the world of physical products. This isn't software. To sell a car, you first have to buy one. You cannot create them out of bits and sell more at nearly zero marginal cost. Your inventory has a carrying cost. You're playing in a market. Carvana got caught buying high and having to sell low. Was there any securities trading firm or auto retailer experience on their management team or board?

[KennyBlanken]

...and this translated into very poor quality vehicles because they couldn't afford proper inspections and repairs (don't have to fix what you don't find! Let the customer sort it out! And be incredibly annoying to contact, so they maybe just go away...ie the Google model of customer service!) and their on-the-road staff were horribly trained. There are multiple videos out there of Carvana staff dropping people's "new" cars off the backs of the flatbed trucks.

I remember seeing the ads for them hiring delivery drivers and it amounted to "have a pulse? friendly? We'll train you to drive a large commercial vehicle and load/unload cars, wooo!"

If I remember correctly they were banned from car sales in multiple states, in some cases states banning them multiple times: https://www.google.com/search?q=carvana+banned+in+what+state...

[bsagdiyev]

Not sure why you were downvoted. They got their Raleigh (Wake County) license revoked for a while for selling cars with Virginia, South Carolina and Georgia titles IN North Carolina. Cars weren't passing basic safety inspection and sometimes they didn't even provide the title after months!

Transferring an out of state title in NC hits you with a road tax up to a defined upper limit ($400 I believe is the absolute highest) based on car value and state you transfer from, so they likely did this to avoid paying that sales tax themselves before selling the car. It's shady as hell.

[freeopinion]

I have several issues with your comment.

1. What makes you think car dealerships run on thin margins?

I don't know what typical margins are, but the owners seem to do pretty well. This may be despite low margins. But I'm reluctant to accept your claim without proof.

2. What qualifies as low margin? 1%? 10%?

3. It is entirely possible to make billions on low margins.

A dealer that makes $1000 per car can make $1 billion profit by selling 1 million cars. If the average car sells for $15k, a $1k profit would be a < 7% margin. See question 2 about low margins.

A little mom-and-pop lot in a very small town can sell 5-10 cars per month. It doesn't seem unreasonable for a huge national online dealership to sell 1 million cars.

4. What timeframe are we talking? Five years?

Carmax financials say they do more than $5 billion in a single quarter.

[hajile]

Used car auction prices are basically fixed. 80-90% of all cars are bought in auctions run by just one company (Cox). Sale prices low/high is usually in a range of about $100.

As supply costs are so thoroughly controlled, the biggest way to increase margins is increasing prices either directly or through service contracts and/or financing. There is a slight economy of scale to owning fleets of car transports and the like, but the actual competitive advantage of those things over smaller dealerships is pretty minimal and I don't doubt is completely cancelled out by the extra administration overhead smaller dealerships don't have.

Carmax used to mark up cars $2000 over auction price. That isn't pure profit though. They have to pay to transport the cars from the auction to their dealership. They have to pay for the building/lot and administration. They have to pay for any necessary repairs. They have to pay interest on the vehicles as they are leveraged on the vehicles they buy (one reason they resell so fast, but may lose money that must also be made up elsewhere). Most significantly, they have to pay the sales team.

By the time you're done, they probably make more like $100 or less per vehicle directly and the rest indirectly through warranties, service deals, and loans.

[twelve40]

not the parent, but they probably meant "compared to typical vc-funded startup expected margins". most faangs don't need to ship tons of steel to anybody and their margins are around 25%.

can you disrupt used cars given all the logistics of the physical world? maybe, I don't know, but people here report both carmax and carvana having severe business issues, why?

[hn_throwaway_99]

Don't disagree with the sentiment that selling physical products is a lot more intensive than a SaaS app, but to this point, "people here report both carmax and carvana having severe business issues" is definitely due to the whiplash in the used car business due to COVID. That is, both new and used car prices skyrocketed due to supply chain issues, so CarMax and Carvana had to pay a ton for their inventory. Now car prices are "normalizing", so both of these companies have high priced inventory that they now need to sell in a low(er) priced market.

[freeopinion]

Typical vc-funded startups have negative margins.

[jjav]

> The buying experience was simply excellent for me

No doubt, because a company that operates at a loss on VC money and passes the savings on to the consumer, can easily provide a great experience/price.

Take advante of those companies while they exist, but be clear that they can't continue for very long. Either VC money runs out and they disappear or they go public and must start making a profit by increasing prices and slashing service.

[mr90210]

Look up Joshua Fluke on YouTube, on one of his last videos he talks in details about the legal issues that Carvana has had.

[lokar]

I’ve heard that before, and always wondered: how dealership owners are able to buy so much power in state capitals?

[xxpor]

Outside of large cities, car dealership owners are usually some of the people with the most money. See also: beverage distributers

https://patrickwyman.substack.com/p/american-gentry

[vkou]

The same way that your local real estate development firms own your town's politics.

They care more about government then literally anyone else in the area, and nobody else has as strong a financial incentive to politically push back on what they want.

[PLenz]

The GM streetcar conspiracy basically gave dealerships to already politically connected individuals in return for killing off streetcars - the payoff being that the busses that replaced (poorly, hence encouraging private car ownership) would be bought via the dealerships. Car dealership owners are often car dealership owners because of adjacency to power, not the reverse.

[slt2021]

that explains all the sleazy sales practices coming from stealerships.

regulatory capture + dishonest sleazy sales practices = happy middleman, but suffering consumer and car manufacturer

[linksnapzz]

A century of practice.