EV-Friendly Carvana Is Having Problems We Should Learn From

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Getting dealers on board for the electric vehicle transition has been tough. Profitability problems, the reduced need for service (something dealers depend on), and the lack of knowledge on the parts of dealers and salespersons has been a real problem that holds non-direct sales back. Tesla and some other EV manufacturers decided to not bother with dealers at all, despite initially having problems selling cars in many states. Even Volkswagen seems poised to try to end its relationship with dealers in the future, as they’re just not letting them get involved with their upcoming revival of the Scout SUV brand.

On the other hand, used cars have been a very different situation. Big dealers have to compete with small, independent dealers, and they have to compete with people just selling their car directly to other people. On top of that, you have the “curbstoners,” or people who are making money selling cars but aren’t getting a state dealer license.

When you’re selling used cars, there’s no reason you can’t sell just about anything, including cars from manufacturers who don’t work with dealers. So, everyone from the curbstoners to the biggest chains of used car dealers got in on the EV action pretty quickly. The early compliance cars were cheap, and they made for a hell of a deal, allowing companies like CarMax and Carvana to sell low mileage cars to customers for cheap.

Carvana, with its flashy “car vending machine” style dealers, has been pretty friendly for EV buyers. Even in places where you didn’t usually see EVs early on, they were one of the dealers who tended to have at least something, even if it was a compliance car, for people to get into the EV world without paying Tesla prices (and this was before the Model 3). Many of us here got our first EV from adventurous car dealers willing to give used EVs a chance.

But, a recent article at Forbes shows us that getting into EVs doesn’t guarantee success.

Explosive Growth

The company grew fast, and took a lot of ground over the last few years. Instead of setting up shop on a neglected street that tends to be home to other used car dealers, Carvana did things the Silicon Valley way. They set up shop with big glass towers, which acted like vending machines for cars. These expensive structures put the cars literally in the buyer’s eye as they drove by instead of putting them in ads or on billboards.

But that’s only a small part of what made Carvana shine. Its website gave customers access to a LOT of data about the cars they wanted to buy, and didn’t set them up for haggling the way most used car dealers do. Photo booths that gave every car perfect lighting, and a turntable to get every angle with the best light, gave even cars that weren’t so great a new car shine on the small screens we carry in our pockets and put on our desks. Finally, access to easy financing options (something embedded in the company’s history) made it possible for a lot of buyers to get into a car faster, and then have it delivered to your door.

This low-friction online buying experience made the company a ton of money during the pandemic. With people stuck at home and businesses closed, Carvana was one of the few companies not caught flat-footed. It was literally ready from day one of the pandemic lockdowns to keep selling cars, while everyone else scrambled to come up with ways to still reach customers and complete sales. This alone created a lot of wealth for the company’s owners.

With people getting stimulus checks, and many still able to work from home, a source for down payment money led to yet another boom for the company in 2020 and 2021. After that came the chip shortages and other supply chain issues, cutting off the supply of new cars. This made many people with aging cars consider buying low mileage used cars instead of new ones, and once again Carvana was there to soak up all of the sales.

This led to further rapid expansion for the company, and it seemed like they were unstoppable.

What Goes Up…

But that which goes up has to eventually come down (unless you’re leaving the planet for good). Carvana’s expansion didn’t give them the ability to cover all of the needs of buyers, especially when dealing with things like registrations and titling during the pandemic. This sowed the seeds of dissatisfaction, with some cars sitting in a customer’s driveway unable to legally drive.

This led not only to a lot of dissatisfied customers, but also led to angry politicians and bureaucrats, who had to field complaints from voters over it. At worst, the company had to face completely losing its dealer license in Illinois, which is home to one of the biggest cities in the United States.

Add economic problems the United States is starting to face in 2022, and Carvana found itself in some real trouble. Worse, many of the people hired during the company’s boom ended up in the proverbial unemployment line in the worst of ways.

Early this month, many employees were told that their jobs were safe. Then, a few days later, they were told that maybe their jobs wouldn’t be safe when they received a company-wide email saying that 12% of the company’s staff would be let go. Then, everyone got invited to Zoom meetings, where they’d find out who would to and who would stay, leaving them feeling like the toy aliens in the claw machine at Pizza Planet.

Some were lucky, and found out that they’d be staying on. Others found out in the Zooms that they’d be leaving (which still left some of them feeling insulted, thinking that they should have at least got a personal phone call or meeting to be fired). Others were the least lucky at all, and didn’t get to find out because their Zoom meetings crapped out, leaving them scrambling to find out whether they still had a job or not.

Lessons Should Be Learned From This

People interested in selling used EVs, or those investing in companies doing this, should read the article I got a lot of this information from and otherwise do good research on the business. A flashy, Silicon Valley experience is fun and exciting, but it doesn’t always result in good long-term results. Sometimes the little independent dealer on the corner of Old Main Street and Broke who has been there forever is the better bet!

Featured image: a screenshot from Carvana’s website in 2021.