The Carvana Lesson

Photo by Obi - @pixel6propix (Unsplash)

One of the great success stories in recent years has been Carvana, often referred to as the “Amazon” of used car dealers.

Until recently.

We all know of businesses that were uniquely positioned to profit from the COVID-19 pandemic, and few fit that bill better than Carvana. Founded in 2012, the company’s new approach to buying a car met pandemic needs and concerns perfectly. Their “vending machine” approach limited contact and exposure to the virus. Stimulus money gave consumers cash for purchasing cars during a time when interest rates were almost zero. Finally, the disrupted supply chain that made the production of new cars difficult stimulated the used car market. The demand also pushed the price of used cars up to unprecedented levels.

So why have shares now lost 44% of their value?

Because almost every dynamic fueling Carvana’s pandemic success has changed.

While the used car market remains strong, there is no more stimulus money, interest rates and inflation are at their highest in 40 years, the economy is close to a recession, and job cuts are coming in waves. Oh, and the supply chain issues for new cars have improved dramatically.

There can be little doubt that many businesses are struggling through these uncertain economic times, but why did Carvana – which did so well during the pandemic – suffer so much coming out of it?

The most telling reason came from Chief Executive Officer Ernie Garcia in an email to employees on November 18: “… we failed to accurately predict how this would play out and the impact it would have on our business. As a result, we find ourselves here.”

When the pandemic hit, organizations and businesses of every kind had to make immediate adjustments. Churches, for example, had to go online, find ways to keep people engaged independent of in-person services, and employ social media for communication and connection.

The most common mistake was to immediately return to a “business as usual” approach once the pandemic ended and in-person opportunities returned. In truth, churches needed to move forward embracing a hybrid approach that continued to offer the digital along with the physical.

But less talked about is the Carvana mistake, which was assuming pandemic realities would last forever and therefore there was no need to plot a post-pandemic strategy. In other words, looking ahead to when things would – to a degree – return to normal. Again, rather than embracing a hybrid approach, the idea seemed to be to continue to cater to a set of pandemic realities when those realities were no longer in play.

Bottom line?

Businesses (and churches) like Carvana were right to seize the moment; they were wrong in failing to see it was momentary. Or more pointedly, what about the changing nature of our world – accelerated by the pandemic – was momentary, and what would be lasting.

Of course, we’re still sorting all of this out. But the lesson of Carvana is clear:

We should be intent on sorting it out.

James Emery White

Sources

Luc Olinga, “The Collapse of Carvana, the ‘Amazon of Used Cars’, Continues,” The Charlotte Observer, November 19, 2022, read online.