In lockdown, we have been fortunate to be able to buy most things online, which has helped keep cabin fever at bay until high streets reopen.
But what about buying a car?
In the US at least, this is now possible thanks to Carvana – the first fully online car retailer. Trading on the Russell 2000 index, Carvana only launched in 2013 but has already proved disruptive enough to generate triple digit growth over each of the past six years.
Carvana aims to “change the way people buy cars” with a 100% online service. Most importantly, instead of having to go to a dealership to pick up the vehicle, Carvana either delivers it to the new owner’s front door or lets them collect it from one of its purpose-built vending machines located throughout the country. These work in exactly the same way as normal vending machines, just on a much bigger scale.
Prior to Covid-19, Carvana published a very healthy set of results for the first quarter of 2020 when its total gross profits increased by 56% year-on-year to $138.4m. When the virus hit, Carvana reacted by pausing some of its operations while also boosting its cash buffers with a £2bn loan from one of its backers and $600m in a direct share offering.
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Backed with plenty of liquidity, Carvana has begun easing back to full operation as demand has returned. Sales recovered so strongly, in fact, that Carvana shares rallied by over 18% on 2 June (closing at a new high of $109.12). At the same time, Carvana has circumvented the importing challenges of Covid-19 by buying more cars from its customers, which has simplified its value chain.
Disrupting the car industry has allowed Carvana to build a profitable and growing business able to withstand the initial shock of Covid-19. This has inspired confidence among management with CEO Ernie Garcia III telling investors the company was still on track to sell over 2 million cars in 2020 and become “the largest and most profitable automotive retailer”.
While many car retailers struggle to adjust to the new normal, the immediate future could benefit the company that has made buying a car as simple as ordering a book on Amazon (or buying a drink from a vending machine).
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