June 17, 2021

Gp Delivers

The excellent automotive artisans

Carvana to Boost Capacity, Betting Online Car Sales Are Here to Stay

Used car dealer

Carvana Co.

is investing $500 million in new facilities and hiring thousands of employees, betting that recent consumer shifts toward buying vehicles online will outlast the pandemic.

Carvana and other online retailers have benefited from coronavirus-related lockdowns and a consumer shift toward e-commerce. The Tempe, Ariz.-based company, which has operated as an online retailer since it sold its first car eight years ago, sold 244,111 cars in 2020, up 37% compared with the prior year. That’s in contrast to wider industry trends. Registrations for used cars—a proxy for sales—declined 7% last year to 37.2 million compared with 2019, according to the National Automobile Dealers Association.

Carvana expects that demand for its services will remain high, even as the pandemic eventually abates. “A big part of it is the customer preference shift toward more comfort buying online, and that’s something we think will be here to stay,” Chief Financial Officer Mark Jenkins said.

The company plans to build 10 new inspection and reconditioning centers, where it conducts repairs and certifies and photographs vehicles. Carvana, which declined to provide forecasts for total capital investments in 2021 and 2022, will have 21 centers once its investment is complete.

The company last year spent $360 million on capital projects, with more than half going toward four new reconditioning centers. It plans to fund its newest investments using asset-based financing, including sale-leaseback agreements, Mr. Jenkins said. In a sale-leaseback agreement a company sells its property to raise cash and then leases it back from the buyer.

Carvana is also planning to hire about 5,000 new employees. It had roughly 10,400 part-time and full-time employees as of Dec. 31.

The investments will help meet rising demand for cars and address some of the inefficiencies that the company dealt with during the pandemic, Mr. Jenkins said. Among those were temporary employee shortages due to Covid-19 infections, which meant that some facilities weren’t operating at full capacity. Carvana expects to be able to certify about 1.3 million cars a year once the new centers are running at full capacity, it said.

Vehicles sit inside a Carvana car vending machine.



Photo:

Patrick T. Fallon/Bloomberg News

Until then, the company is dealing with declining inventory due to strong consumer demand. Immediately available inventory dropped by about 26% in January to 9,500 cars a day, compared with the fourth-quarter average of 12,800. That’s up from an average low of 4,700 cars in July, and down from a high of 25,300 in April.

Competition from other online car dealers has been growing over the past year. New York-based

Vroom Inc.

went public in June while

Shift Technologies Inc.

obtained a public listing by merging with a special-purpose acquisition company. The companies, which are smaller than Carvana in terms of annual sales, have also invested to expand capacity.

Carvana, which is not profitable yet, has been booking bigger losses as sales increased. Its annual net loss rose 27% in 2020 to $462.2 million compared with a year earlier. The company declined to provide a timeline for turning profitable. Total revenue was $5.6 billion in 2020, up 42% from the previous year.

A big task facing the company will be to find, train and retain enough mechanics and technicians, equity analysts said, pointing toward labor shortages in the industry. That could mean paying up for talent, said Michael Montani, a managing director in the research division at investment firm

Evercore Inc.

Asked about potential hiring challenges, Mr. Jenkins said Carvana offers competitive salaries and benefit packages, including equity participation for all employees.

Write to Kristin Broughton at [email protected]

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