Carvana forced to cut costs amid falling demand for used cars
The quarter ending June 30 was a crucial time for Carvana to work on factors it can control, such as managing its cash outlays, analysts said: If it cuts expenses effectively, it will be better off. able to manage a possible lull in demand. Carvana cut 2,500 operating jobs mid-quarter in a bid to cut expenses. But it also took on more debt to finance its acquisition of US wholesale auction firm ADESA from KAR Global.
“The fact that they allowed him to get to this point is not encouraging and, unfortunately, this is a pivotal quarter around spending control,” Pierce said.
At the moment, expense control is necessary for the business and its potential for future profitability, Pierce said, because “there won’t be a ton of upside around units and unit growth.”
And because Carvana’s revenue model is also dependent on profit per vehicle, the company will likely continue to aim to make more money for every vehicle it sells, Arthur said.
Carvana reported total gross profit per vehicle of $3,656 in the first quarter of 2021. This fell to $2,833 in the first quarter of 2022 after the company sold fewer cars than expected, driving up costs per vehicle.
Vroom and Shift said this year they also aim to cut costs. In May, Vroom indicated that it would reduce its marketing expenses as part of its attempt to realign itself for profitable growth. He also did not rule out a downsizing.
Shift said its cash usage in future quarters would likely be lower than it was in the first quarter, when it had several one-time costs. It also listed a going concern warning in federal documents. Sharon Zackfia, who covers the three online used-vehicle sellers as an analyst at investment bank William Blair, previously said Automotive News that Shift likely has the resources to get through 2023, when the market might normalize.