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With These Large changes, will Carvana Come Out On Top, And How Will Affect Dealers Like You?
According to a document filed Tuesday with the US Securities and Exchange Commission, Carvana Co. proposes to lay off 2,500 people, or roughly 12% of its workforce.
According to Carvana, the staff are mostly in the operations groups. The online used-vehicle reseller will "move services away" from a handful of its logistical hubs, as well as its inspection and reconditioning center in Euclid, Ohio, as a result of the downsizing.
"To help contribute to the severance pay for departing team members," Carvana announced its management team will forego their salary for the remainder of 2022.
With these recent developments, Carvana appears to be undergoing large changes to help balance the losses, as the article will outline in further detail below.
"We believe these decisions, while extremely difficult, will result in Carvana restoring a better balance between its sales volumes and staffing levels and facilitate Carvana returning to efficient growth on its mission to change the way people buy and sell cars," the company said in the filing.
The layoffs relate to “recent macroeconomic factors that are significantly impacting automotive retail,” a Carvana spokesperson said in a statement.
They come just weeks after Carvana reported a $506 million loss in the first quarter as high used-vehicle prices, rising interest rates and other issues affecting the auto industry dented sales. It felt higher costs and a lower profit per vehicle than expected.
It’s not just Carvana taking a hit in the tumultuous market. Digital retail companies that received a long period of boosted sales and elevated customer interest during the COVID-19 pandemic are now seeing some cooldown, and it’s reflecting in their earnings.
Vroom Inc., one of Carvana’s competitors in the online used-retail space, on Monday said it would consider a workforce reduction as part of a larger plan to realign its business strategy and boost gross profit per vehicle sold. Vroom also appointed a new CEO.
The company on Tuesday finalized its $2.2 billion acquisition of ADESA U.S., the nation’s No. 2 auction house.
Analyst insight
The layoffs are the first step taken as part of Carvana’s plan pare costs amid challenging sales, Stephens Inc. analyst Daniel Imbro said in a research note.
Affordability could remain troublesome for Carvana and more cost cutting could happen in the coming weeks, Imbro said.
“While this reduction should help with cash burn, we believe it is a recognition that these headwinds may not pass as quickly as hoped,” Imbro said.
Carvana said it would post more details about its operating plan to its investor relations website later in the week.
Carvana said the laid-off employees will get four weeks of pay plus an extra week for every year they have been with the company.
Carvana’s stock has fallen from the $376 high it reached last August to less than $40 as of Tuesday. Most recently shares slipped 1.6 percent to $38.12 as of 3:20 pm EDT Tuesday.
Our Perspective
We believe that not only Carvana, but most retailers are struggling due to the current social and financial climates. COVID-19 put a large dent in the industry.
Chip shortages, lockdowns and even the outbreak of war in Ukraine has put strain on the entire supply chain causing the effects we're currently witnessing. This may be just the tip of the iceberg when it comes to companies having to restructure their current business models to adapt with the problems that have arisen.
Fortunately, we see this current market as an opportunity to get a leg up on your competition. We have solutions that we feel would address the problems dealers are currently facing, so make sure to reach out to us if you want to find out more, and subscribe to our newsletter to stay up to date with our industry insights!
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