The rise and fall and rise again of Carvana

Welcome to another edition of expert insights from the Car Dealership Guy Podcast, an episode recap that breaks down the juiciest takeaways from the conversation.

In this episode, Ernie Garcia, Jr., Co-Founder and CEO of Carvana, talks about the company’s dramatic turnaround, acquiring ADESA, how gross profit per unit (GPU) continues to break records, and the future of selling used cars online.

You can stream the full episode now on YouTube, Spotify, or Apple.

1. Carvana’s ups and downs over the last decade.

While Carvana saw incredible success following its founding in 2013, the COVID-19 pandemic placed the company in a difficult position. Talks of the brand’s possible bankruptcy were frequent in 2022 and 2023. Ernie notes that those years were challenging, but that the contributions of the team were what eventually pulled Carvana through.

2. The catalyst for starting the company.

Ernie explains that his motivation to start Carvana came from his own experience working in automotive finance. Despite the industry’s emphasis on customer service, buying a vehicle is a challenging process mired in years of tradition.

Carvana was intended to remove the stress from the vehicle purchase equation while boosting transparency and putting more control in the hands of buyers.

3. Navigating through a pandemic.

Carvana has changed significantly since the days before the pandemic. Ernie explains that for many years, the company’s emphasis was on growth rather than efficiency. While this worked in its favor for many years, it relied heavily on investment money to sustain that focus. When that money dried up at the height of COVID-19, the brand had to switch priorities to cutting back on costs. This proved to be an easy move, however, as there were many opportunities to invest in cheaper processes and scale back expenses.

4. Enhancing the customer experience.

Sometimes the best customer experience is the simplest one. Ernie notes that Carvana’s original price transparency tool used a graph to explain a vehicle’s historical price averages in relationship to its mileage, complete with links to previous listings to prove the accuracy of the data. While he admits finding it difficult to let go, the graph was ultimately too confusing for users.

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5. Balancing industry experience vs. fresh perspectives.

Ernie believes that companies must balance experience with creativity when it comes to making hiring decisions. Industry knowledge is vital for a company. Without it, teams would waste years reinventing the wheel. However, it can also trap individuals in a mindset, preventing them from identifying new ways of thinking. On the other hand, workers with an outsider’s perspective are essential for innovation, which, for a brand looking to disrupt a business sector, is even more important. Having a balance between the two is crucial to running a successful company.

6. A business like Carvana comes with its own strengths and weaknesses. 

For Ernie, two of the company’s biggest strengths are its massive inventory and shipping network. While dealers can only sell models that customers in their market want and can afford, Carvana can reliably find a buyer for any vehicle it carries as its shopper base is nationwide. This allows it to carry a much more diverse inventory than a normal auto retailer. Alternatively, Ernie believes that Carvana’s current lack of a service department could be a weakness since the company is forced to rely entirely on auto sales to generate revenue.

7. The path to long-term success.

Running a successful business in the long term requires one specific factor: bringing value to customers in a way that is difficult to replicate. While any company can offer something that buyers want, the easier it is to deliver the product, the more competitive their space will be. Since setting up a nationwide shipping and storage network for vehicles is challenging, Carvana has carved out a strong niche that few competitors will be able to invade.

8. Carvana’s profitability.

Carvana has a notably higher profit margin than most auto retailers, earning an average of roughly $7,400 per unit. In comparison, most dealers earn anywhere from $2,000 to $4,000 for each used vehicle they sell. Ernie attributes the company’s strong results to its integrated business model, which includes both wholesale and automotive financing.

9. AI and the car business.

Ernie believes that artificial intelligence will make a significant impact on the automotive space. In fact, Carvana is already using AI to improve efficiency in several areas, including coding and chatbots.

10. Watching the EV market closely.

While electric vehicles are pushing the industry to implement new technologies, processes, and shopping experiences, sales have also started to slow down in recent months as charging infrastructure lags behind. Ernie believes this is a natural part of the cycle for innovative products, and that demand will pick up in the near future. To prepare for that future, however, he adds that companies like Carvana will need to be adaptable and ready for change.

You can stream the full episode now on YouTube, Spotify, or Apple.

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