Economics 101

Do Carvana's woes present a warning for the classic car market?

by John Stoll
10 June 2022 5 min read
Photo by Getty

The stock market—as irrational as it sometimes seems—is governed by the law of gravity. And, for anyone in doubt, the pandemic delivered a freshest reminder of how forceful gravity can be.

Consider Carvana. The used-car seller was made famous by its vehicle vending machines and vibrant online marketplace. The company experienced a considerable COVID-19 tailwind as people locked down, worked from home, and shifted even more of their lives online. Shares soared, headcount ballooned, optimism swelled.

As people resume a life that more closely resembles normal, investors have soured on the company. Carvana went public in 2017 and soared to a $30 billion market capitalization last summer. Today, the value has dwindled to $4.5 billion. The Wall Street Journal has characterized Carvana as a “post pandemic loser.” It’s hardly alone in this category: Peloton, Netflix, Zoom, DoorDash, and Robinhood all have the dubious distinction of being perceived as pandemic-boosted businesses that may not thrive in regular times. This has driven the collective share prices of these companies down 76 percent from their pandemic-era highs, compared an 11 percent slide for the Dow Jones Industrial Average during the period.

The rise and fall of Carvana is of more than a passing interest to classic car owners, and not just because used cars have a clear (if indirect) relationship with collector cars. Even the casual classic car market watcher can see that values have gone sky high in the wake of the pandemic. Although there are many reasons for that, a big one is the success of online classic car auction platforms.

Do the waning fortunes of Carvana and other businesses optimized for a world in lockdown bear a warning for the classic car market?

Looking under Carvana’s hood

It helps, to start, by taking a closer look at Carvana. Those who follow the Arizona-based retailer tell us that even if the stock is in the toilet, we shouldn’t be so quick to write off the company or its business model.

“Investors appear to have largely given up on this once high-flyer,” Bank of America Global Research analyst Nat Schindler said in a recently published investment note. “We, however, still believe in Carvana and its opportunity for one glaring reason: it is a fundamentally better way for consumers to shop for and buy used cars.”

Indeed, you don’t need to be a Wall Street analyst to spot the advantage online car buying has over other pandemic-safe activities. Peloton riders may miss the camaraderie of a group spin class, and even the most devoted Neflix watchers pine for the big-screen experience (Top Gun: Maverick, anyone?). Few people, in contrast, have been sitting at home for the last 18 months thinking, “I just can’t wait to visit a used car dealer again.”

This perspective is only bolstered by plans of new car manufacturers. Ford Motor Co. CEO Jim Farley said his company is going to eventually turn to 100 percent online, fixed-price sales of electric vehicles as evidence the 119-year-old auto giant can keep up with the times. As Detroit and others pump more money into online-car buying models and real-time one-click pricing technology, the entire industry will likely be forced to follow suit.

In BofA’s view, today’s buyer is already less inclined to need a test drive, less inclined to want to kick the tires, and less inclined to want to haggle with a dealer. Carvana, Schindler said, can capture increasingly more “share of the 40 million annual used car market from highly fragmented competitors.”

Tom Taira, Carvana’s president of special projects, told Hagerty Insider that his company’s trajectory and travails are more due to the laws of supply-and-demand than attributable to the company riding a pandemic bubble.

“Carvana was already successful at starting to bridge the (physical and virtual) markets” before the pandemic, Taira said. At some point, he said, macro-economic pressures were going to impact the business. But the bridge has been built.

Carvana’s first-quarter financial report wasn’t pretty, to be sure. Sales fell, net losses widened, and gross profit per unit narrowed. Executives laid out plans for a $2 billion fundraising strategy, in part to fund the planned acquisition of the ADESA U.S. vehicle auctioneer.

To understand Carvana’s specific plight, wider trends and practices in the used-car industry can’t be ignored.

During the pandemic, prices for preowned vehicles climbed as much as 45 percent—hitting a whopping $30,000 on average. These prices far outpaced new-car price inflation, as chip shortages and other supply-chain snarls slowed new-vehicle production, sparking a run on pre-owned vehicles.

Of late, however, buyers have showed resistance to rising car prices, particularly as new-car supply has been replenished. High interest rates, punishing gasoline prices, inflation of most household good costs, and fears of a recession have further affected demand. CarMax, another used-car giant—known for mega “superstore” car lots instead of a killer website—has also been punished by analysts and investors concerned about vehicle affordability and the macro economy.

Another wrinkle of Carvana’s business that makes it distinct from most classic car online auctions is the murkiness of used-car financing. Carvana provides loans—including some to buyers with subprime credit scores—for some 75 to 80 percent of its purchases, according to American Banker. It then bundles and sells these loans. Although this practice isn’t entirely unique among used-car retailers, critics have told the Wall Street Journal that such financial maneuvering has a liability to backfire (see: Global Financial Crisis).

None of this context makes Carvana’s recent struggles any easier. And it’s surely cold comfort to the 10 percent of the company’s workforce that was recently let go in order to shore up the ailing finances. Yet even if the company continues to underperform, the future of online car buying—a dream since the early days of the internet—seems bright.

The classic car connection

At the beginning of the pandemic, many (including us) wondered if the collector-car buying masses would really buy decades-old vehicles they’d never seen. In fact, we still have our doubts. Yet the verdict, clearly, is that many buyers are more than happy to bid online.

Growth of online auction platforms has continued to accelerate even as in-person venues have reopened. In May 2022, the sites Hagerty tracks (including Bring a Trailer) reported more than $130M in sales, a 65 percent jump from May 2021, when many of us were still at home. A slight year-over-year fall-off in sell-through rates (from 81 percent to 77 percent) likely owes more to general cooling in the market than specific discontent with the online experience.

Even as in-person auctions have pitched their tents again, bidders show no signs of discontent with online platforms. Bring a Trailer sold its most expensive car, ever, a Ferrari LaFerrari Aperta, in May. (Photo courtesy Bring a Trailer/Vance911)

“People want to just be able to buy what they want the way they do on,” said Randy Nonnenberg, president and co-founder of Bring a Trailer. “That was already happening before the pandemic; the pandemic just threw gasoline on a fire that was already burning.”

Nonnenberg acknowledges that classics require special diligence from both buyers and sellers. “Cars are obviously a different animal than buying shoes on Amazon,” he said. “And a 50-year-old car has a lot more nuance than a newer car available on Carvana.”

As collectors get younger, the online trend is likely to accelerate. In recent years, everything from grocery shopping to travel booking to stock picking has been done via a smartphone. Millennials—many of whom know less about the way a car operates and have a higher comfort level in online settings—may actually prefer the reassurance of a group of commenters to kicking tires.

We’ve not been shy at Insider in pointing out that the recent boom in collector car values is not sustainable. Some day, sooner or later, the torrent of record prices both online and in person will slow, and the run-up that started in 2020 will be remembered as one more unprecedented thing that happened in that chaotic time. Yet even when the waters recede, online car buying—both used and classic—will likely still be with us.


  • PDMRACING says:

    No comparison. Carvanas problems are massive expansion & the aquisition of Adessa Auction company. I see no parrelell to the collector car market

  • Mark says:

    Carvana always relied on the sub-prime market and the risks exist in that market especially as the economy slows and inflation rises.

  • Jonathan Lane says:

    Any discussion about Carvana and its demise needs to include their shady practices. I think if a company doesn’t fail to produce a title for a car they’ve sold, they will probably by OK.

    • JG says:

      I agree with Mr. Lane. My personal research and consideration of using a competitor to Carvana (as well as Carvana) was that the support nightmare that ensues when a car is transported cross-country to another market where it is worth more (their business model – eg. rust free pickup form NM worth more in New England, or 2wd vehicles not a disadvantage if shipped down to FL market, but FL car with no A/C is still marketable up in ME – instant profit margins) but their title doesn’t follow. The title, insurance and registration issues that followed coupled with poor or non-existant customer support (can’t talk to ANYONE that can help them – nowhere to take car back to) that only gets worse as these companies layoff more employees due to falling stock and profits. The end result is major problems for car buyers that then can’t use their new car, and now have no means of transportation becasue their old car was already carted away on the cartoonish flatbed! This is on top of the usual amount of complaints related to mechanical or cosmetic issues you’ll always have when selling any used car (or getting your car delivered to your dimly-lit street on a flatbed, at night). Just check out the sheer number of consumer complaints on our federal regulatory and consumer protection websites, (e.g. FTC, CFPB, BBB) — it’s scary. At least when you buy a car from a brick & mortar dealership, or even an individual, you can see the misalignments or cracks, textures (painted-over rusty floor boards or any metal repairs) and scratches, you can feel the bad vibrations during the all-important TEST DRIVE and hear or smell anything else there is you might want to know about beforehand — or perhaps see the leaks dripping or hissing after the test-drive. The author’s statement about it not being akin to buying a new pair of shoes online is correct!

  • Gordon Wangers says:

    This is one of the best stories I have ever read on Hagerty. It is well researched, well balanced, very relevant subject matter, and while it does contain some opinions from the reporter, they are very well taken — his conclusions seem to be right on the money. Thanks for the excellent work!

  • Greg Parker says:

    Carvana has been a mess for years, maybe since Day One, for multiple reasons.

    Almost all of those reasons hurt the buyers.

    It’s an easy place to get rid of your heavily-damaged vehicle that looks good after coming out of the body shop.

    Since everyone is buying based on photos, you have to trust the seller even more than is typical.

    “When you buy a car, you’re not just buying the car. You’re buying the seller.”

    So buyers can end up with vehicles with significant undisclosed prior damage.

    Caravana is also buying the vehicles based on photos, so they really can’t verify scams like that.

    We’ve had buyers here not be able to register their Carvana vehicle for six months or more, due to Carvana’s inability to get the title transferred. You’ve paid for and received the vehicle, but you can’t use it.

    It’s great concept, but as always, success is in the execution.

    I like BaT. I’ve purchased two cars there.

    But while not as bad, there are similar issues there.

    Mostly it’s the commenters shilling the vehicle (either intentionally or unintentionally).

    Every listing is “awesome” and at the end someone virtually always comments that they missed the end because they were “in a meeting” or “on the toilet” or whatever, and would have bid higher because the car is worth more than that. Uh-huh. What a crock.

    I’m starting to wonder if some of these fanboys are paid!

    Then another comment (or three) is “stolen!!!”

    Or “grand theft auto just occurred!!”

    No, it sold at current market. And sometimes at the very top of the range for cars in higher condition.

    It’s ridiculous, but it helps drive up the gavel prices.

    Mostly less-experienced bidders are in the hunt, and they are, as the article says, very interested in the comments.

    Those of you that haven’t already done so should go read the entire comment string of a closed auction for a car that you are very familiar with. It’s quite “interesting.”

    Now we have Cars and Bids.

    The shilling there is worse. Again, perhaps not intentional, but some of those shills have cars very similar to the one on action, or a buddy does, and love to see the market price for those vehicles rise.

    So, I think places BaT will do just fine, but they are places to sell vehicles at top Dollar, far more than a good place to buy one.

    As long as you know all of that, you’re OK.

    Like homes, when values are shooting up, you think it doesn’t really matter, and FOMO takes over, pushing gavel prices even higher.

    For the most part, what goes up must come down. Blue-Chip vehicles are a big exception. When things crash, they may stop appreciating for a while, or drop a little, then resume their upward values. They won’t crater.

    This is true of virtually every collectible, in my experience.

  • Psychofish2 says:

    ‘In BofA’s view, today’s buyer is already less inclined to need a test drive, less inclined to want to kick the tires, and less inclined to want to haggle with a dealer.’
    What idiot would buy a car without a test drive or seeing this overpriced potential purchase in person FFS?
    See below:
    ‘High interest rates, punishing gasoline prices, inflation of most household good costs, and fears of a recession have further affected demand.’

    BofA is full of cabbage.
    That is a hopium scenario developed from wishful thinking and not actual analysis.

  • Psychofish2 says:

    ‘In BofA’s view, today’s buyer is already less inclined to need a test drive, less inclined to want to kick the tires, and less inclined to want to haggle with a dealer.’

    What idiot would buy a car without a test drive or seeing this overpriced potential purchase in person FFS?

    See below:
    ‘High interest rates, punishing gasoline prices, inflation of most household good costs, and fears of a recession have further affected demand.’

    BofA is full of cabbage.
    That is a hopium scenario developed from wishful thinking and not actual analysis.

  • william phillips says:

    Great article accept some issues its dead wrong on. Carvana uses greasy used car salesman terms like “computer wizardry” and vending machines, by freeways. Same as tire kicking on a lot. Vehicles represent many things to buyers. Look in person is often different than online, Feel, smell, drivability, fit, ect ect ect More than just one sensory in buying many things. You don’t just send a car back you buy without seeing. Ever had this happen if your a classic collector?? You haven’t bought enough if that’s a no. ALL the money you can throw at this won’t change why people buy. Dealers need to change, as non dealers acting like one, continue to fail. Cars Direct anyone?? BAT by the way engages in this same garbage. Their curation process as they call it is simply designed by amatures to force sellers to take less than market, and they also sensor out negative comments on selected lists and users who tell a bit to much of the truth. BAT simply stands in the middle and collects. Online retailers will continue to have issues as would an ice cream vendor would because the product has too many variables. You can like this or not, but it doesn’t change the fact that many articles push things the unthought out ill planned EV adoption fallacy or buying this product online that consistently fail.

    • John Kenny says:

      I’ve purchased three vehicles on BAT. There conditions were all as described. My sense is that I bought one below market, one at fair market, and the third I paid over market with eyes wide open because I wanted it badly. I’ve also decided not to bid on some because some things seemed amiss.

  • Mark Berlinski says:

    People on this site are car people. Most new cars are solid appliances. Many people don’t care about driving dynamics. If it looks good they will buy what looks good and generally be happy. They don’t need to kick tires.

  • Alex Sargeant says:

    As enthusiasts we all scoff at the idea of buying a non-classic car without driving it. The article is correct, it is happening. I’ve just recently retired from the luxury segment (Maserati/Alfa Romeo) and I sold cars all over the country from my dealership to buyers who had never even sat in a Maserati or Alfa before buying online or over the phone.

  • Jim Kern says:

    I was in the market for a late-model used car for several months – looked at a lot of on-line ads. The Carvana prices were always several hundred dollars higher than other dealers for similar cars. The used car market has always been competitive – maybe that’s why Carvana sales have slipped. If you’re looking for a mid-seventies Malibu, you have to look beyond local – there was a Hemming’s Motor News long before there was an internet. But if you want a 5-year old Camry, you will probably can find a dozen of them where you live, so the on-line appeal just isn’t so great.

  • Mark Lunden says:

    Carvana committed a multitude of errors, not unlike meme stock traders. They loaded up on inventory just as used car prices started to roll over. They financed loans to thousands of sub-prime borrowers. They expanded like mad at the end of a boom cycle. That all might work out if a) the economy was doing well b) rates were stable/falling c) consumers were flush and no inflation was squeezing their spending and d) lenders were not worried that default rates were headed higher. Unfortunately, every one of those is headed the other way.

    They are heading for the wall at 180mph and the brakes are smoking. Wouldn’t be long unless you like vaporizing cash.

    Honestly, tough to see any real comparison to collector car market. Sorta like comparing a framed print from Target to a Van Gogh – they are quite different.

  • Maestro1 says:

    The whole concept is ridiculous. When you buy a car, go and see and drive it. Forget the computer BS. If you don’t know anything about cars then show it to a mechanic and let him tell you what it needs.

  • D. Oliver says:

    The only thing I would buy out of vending machine is a bag of chips.

  • Bruce Stocker says:

    After 46 years in the retail automotive business, I have observed the changes from people scouring “classified ads” driving lot to lot to online auctions and people ordering their cars like a pizza on a Saturday night. It has been interesting to say the least! The biggest difference I have noticed has been due to the wealth of information available to anyone (with half a brain) on the internet. With a minimum of effort, you can narrow your options very easily with resources such as KBB, Edmunds, cargurus, carfax, autocheck, to name but a few. Most people I sell go to 1 or 2 places because they have done their homework and know what they want and how much it is going to cost. It ain’t rocket science!!

  • Rob says:

    It seems appropriate that the new Carvana Crystal Palace is located on the site or a former abattoir in a nearby town.

  • Rob says:

    it seems appropriate that the new Carvana Crystal Palace is located on the site of a abbatoir in a nearby town.

  • Rick says:

    Online buying through sites such as Classic Car Trader Online, eBay have been around a couple decades now. I think it’s difficult to connect the used car market to the classic car collector market. Used cars are transportation; collector cars are investments or hobbies. Carvana is a blip on the radar of the automobile landscape. Another non value added idea come and gone – like many other tech ideas that only got life because of several years of low cost of capital. The very people these concepts appeal to are the ones that can least afford it. Now that we have 40 year high inflation and rising interest rates we’ll see lot of these convenience platforms going bust. The classic car market is enjoying the same euphoria as the stock market – again due to low cost of capital and too much liquidity. Cost of cash is going up, stocks are crashing; real estate is softening….the price of other assets like art and collector cars will also soften. People who finance collector cars will be the first to drop out. That’s about the only common link between collector cars and Carvana I can find. Beyond those who finance, add to those cash buyers who will now need cash for other reasons and you’ve just taken away a measurable swath of buyers. As demand goes down so do prices. Those that have enough wealth to be recession proof will proceed to buy stocks, real estate and collector cars at depressed prices. How many times have we seen this movie before?! We saw this back in the late 90s. Most cars were cash purchases back then. There were some collector car dealers, but not like today. And they didn’t have a lot of financing options. Today, it’s an industry that has drawn in more buyers with cheap credit. As the economy tanks, collector cars, vacations and lobster dinners will be the first things cut.

  • pdmracing says:

    I have been selling retail classics & exotics worldwide for the last 10 years with most sales sight unseen from 5k to 500k with the way we describe & document the car , they knwo aqs much as I do prior to purchase. The non collector car buyer is looking for an appliance , they could care less as long as the price is right & it runs & looks as described. The real threat is the uberization of the car business. Places like FB marketplace has expanded the unlicensed street dealers by the millions. Open titles, with no enforcement at all, no chain of ownership, noo recourse at all. dealers get a bad rap but many like to buy from a licensed dealer. I spend countless thousands in insurance, bonds, regulatory audits , taxes, yet these guys get a free pass & the buyer gets a car he has no idea who he bought it from. Ive seen FB profiles with 35 plus cars for sale, no taxes paid , no title transfered , no consumer protection yet if I have an open title its a 1k fine. As I stated before Carvana & classic car market are in no way connected other than they roll in tires.

  • jane don says:

    since I don’t buy New(ER) cars– for daily drivers– I would never buy without test driving them first–too many “IFS”- & a Classic–way too many “IFS”– A new or almost New car is a different animal– It’s like buying a Refrigerator or cell phone-you want certain features & want a warranty- I’ve driven Hrs to look at a Classic & came home with Nothing– Buying online I would have been stuck with a Lemon –I do wonder about online sellers like Carvana as a bus model though–They finance cars & 75 or m80% of the buyers have not so good credit thes questionable “Loans”, then Sell–Isn’t that what happened with the subprime mortgages a few yrs ago?

  • Clay Thompson says:

    Anyone buying a car out of a vending machine or online without test driving it might be a fool with his money. I like Dr. Simone’s approach to purchasing a collector car. He did his due diligence before buying.

  • Todd says:

    I purchased a vehicle through Carvana this past November and was impressed with the experience. A good price on almost exactly the used car I was looking for, and crazy money for my trade. Unfortunately, they just recently got the title for the vehicle I purchased to my credit union after 7 months!

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