The first quarter of 2022 hasn't been the best for Carvana. The online used car company is arguably best known for its big automotive vending machines, but right now it's known for laying off 12 percent of its workforce. That equates to 2,500 jobs, and it comes amid a Q1 2022 net loss of $506 million. That didn't stop Carvana from also spending $2.2 billion, which we'll discuss in a bit.
The reason for the net loss? In a letter to investors, the company mentions skyrocketing used car prices with higher interest rates, along with disruptions in Carvana's reconditioning and logistics network. Other COVID-19-related issues are also mentioned, though details aren't provided. That said, the company reported revenue of $3.49 billion, which actually represents a 56 percent increase from the first quarter of 2021. Curiously, Carvana also sold 14 percent more cars through the first quarter of this year, 105,185 to be exact. However, profit-per-car is down by $823.
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"Q1 was a unique environment," said Carvana CEO Ernie Garcia. "Omicron, high used vehicle prices, rapid changes in interest rates, and other macro factors impacted Carvana and the used vehicle industry as a whole. We view these macro factors as transitory and remain focused on delivering the best possible experiences to our customers. As part of this goal, we are excited to bring on ADESA US, which will allow us to provide even better experiences through expanded selection, faster delivery times, and better value."
That brings us to the second half of this report, which might seem contradictory for a company that just ended 2,500 jobs. On May 10 – literally the same day Carvana filed its workforce reduction notice with the US Securities and Exchange Commission – it announced the acquisition of vehicle auction company ADESA for $2.2 billion (yes, billion). The deal had been in the works for some time, adding 56 ADESA US sites to Carvana's portfolio.
"Despite the recent industry slowdown, Carvana continues to grow and deliver exceptional experiences to an increasing number of customers," said Garcia. "We aim to use this ADESA US alignment to both improve the experiences of the ADESA US physical auction customers and to focus on significant and sustainable efficiencies, and unit economic improvements, for Carvana to catapult back into rapid profitable growth as the industry inevitably rebounds."
As for the 2,500 people that lost their jobs, Carvana's SEC filing says there will be an "opportunity" for them to receive four weeks of pay plus an additional week for every year spent with the company. Extended health coverage is also available, and to help fund the severance package, Carvana's executive team will forego their salaries for the rest of 2022.