Tempe-based seller Carvana reports second wave of layoffs

Carvana Co., the once-high-flying online seller of used vehicles known for its car "vending machines," announced the layoffs of 1,500 people late last week, its second major workforce reduction this year.

The Tempe-based company on Friday said the layoffs would be centered in its corporate, technology and operations units. No other details were provided.

The company has cut almost 20% of its employees in 2022.

"All impacted team members will have the opportunity to receive six weeks of pay plus an additional week for every year they have been with Carvana," the company said in a regulatory filing. "Impacted team members will also have the opportunity to receive extended health-care coverage, pay equal to early vesting of certain previously granted equity awards, recruiting and résumé support, and continuing participation in certain other company programs."

Carvana was launched in 2013, and its stock soared after an initial public offering in 2017 amid expectations that the company could dominate the historically fractured used-vehicle market. The stock vaulted to nearly $377 a share in August 2021 as Carvana became one of Arizona's most valuable corporations before its losses began to widen. Carvana's stock since then has lost 98% of its value, now trading around $7 a share.

Earlier this year, Carvana, which occupies offices fronting Tempe Town Lake, let go of 2,500 people. The two workforce reductions cut 4,000 jobs from what had been a staff of 21,000 full- and part-time employees at the end of 2021.

"We believe these decisions, while extremely difficult, will help Carvana achieve its financial goals," the company's statement added.

Those goals don't include near-term profitability, as the company has been investing aggressively in advertising, expanding its operations to reach a broader proportion of the U.S. population and building its logistics network. The logistics network includes reconditioning and inspection centers along with Carvana's iconic vehicle vending machines such as one located in north Tempe along Loop 202.

An internal memo sent by CEO Ernie

Garcia, reported by CNBC, said the company failed to predict how declining used-car sales "would all play out and the impact it would have on our business."

Ironically, Carvana over the first nine months of 2022 sold more vehicles than over the same stretch last year — about 325,300 used cars and trucks compared with 312,200. But sales did turn lower in the most recent quarter.

Part of the company's problem has been a sharp rise in the interest rates charged on used-car loans amid rate hikes by the Federal Reserve to slow the economy to combat inflation.

Vehicles are more difficult to afford for a lot of people. Average interest rates on four-year used-vehicle loans have risen from 4.8% in July 2021, around the time inflation started to trickle higher, to 6.2% in October 2022, according to Bankrate.com.

Seth Basham, an analyst covering the stock for brokerage Wedbush, said the company still hasn't shown signs of stabilization, and he feels the liquidity situation could get worse.

In a recent report, Basham said he continues to believe in the company's business model but added that Carvana's "bloated cost structure" is designed to support much higher sales volume. He predicted the company might need to mothball certain inspection/refurbishing centers or other facilities, sell off some of its real estate holdings, pull out of unprofitable geographic markets or take other costcutting actions.

Raising fresh outside capital could be difficult, he added.

Carvana reported a net loss of $781 million, or $7.88 a share, over the first nine months of this year, compared with a loss of $46 million, or 56 cents a share, over the same period in 2021. Expenses have risen, vehicle inventory has dropped, cash on hand has declined and both accounts payable and long-term debt have increased.

The gross profit per vehicle sold has ebbed to $3,237 compared with $4,526 previously, Carvana reported.

Those figures don't include substantially higher sales, general and administrative expenses that swelled to $2.1 billion over the first nine months of 2022 compared to $1.4 billion over the same span last year — expenses that the company is trying to rein in with the recent layoffs.