Carvana is in tough weather, very tough weather! Yesterday, the company announced that 12% of its staff will be laid off and that the management team will no longer receive a salary. This is because their share price has fallen 90% from its peak. Also announced: Carvana acquired  ADESA’s physical auction business, #2 in America, for $2.2B to expand its used car capacity. How is this possible?

Informing employees

The way in which the employees have been informed that they are immediately out of a job is the worst HR tactic you can think of. The bad news was shared via a pre-made video on Zoom. I can imagine that as an ex-Carvana employee that leaves a bad taste in your mouth, especially considering the commercials that illustrate Carvana’s ‘happiness’ brand positioning: changing car ownership for the good and making it an empowering process for the customer. Their Carvana Code is clear: We’re all in this together. There is an old Dutch proverb for this: ‘As the innkeeper is, he trusts his guests.’ A person who is untrustworthy is unlikely to trust others.

Their Carvana Code is clear: We’re all in this together. There is an old Dutch proverb for this: ‘As the innkeeper is, he trusts his guests.’ A person who is untrustworthy is unlikely to trust others.

Carvana is actually a universal car company that sells (used) cars online through a fantastic (really) website. The promise is also good: completely transparent and online business, without the intervention of a salesperson. I don’t need to explain to you that there is a difference in practice, between what marketing and commercials promise and what happens in reality.

The owners of Carvana

For the owners of Carvana, all of whom are now billionaires, the company was successful. But is it really successful? So Carvana is publicly traded, and, in a time of free money, you can go far. You can lose money and still gain value. As weird as that is.

Carvana sold cars for less money than what they arguably paid at auctions for those same cars. The goal was to show consumers a fast-growing business. They focused on turnover numbers, instead of profits. In February, Carvana announced their first positive earnings quarter even though they had already sold over one million cars. Even though they are valued at $43B, their shares have dropped nearly 90% since November.

They focused on turnover numbers, instead of profits. In February, Carvana announced their first positive earnings quarter even though they had already sold over one million cars. Even though they are valued at $43B, their shares have dropped nearly 90% since November.

Respond to the market?

Now that turnover and customer satisfaction are low and profits are minimal, the markets are becoming more nervous, partly due to rising interest rates. And what do you do then? Then, you buy an auction house that can retail or wholesale cars via Carvana. Then the turnover grows, and, in this case, also the losses.

Situation in Europe

We have similar business models in Europe, with Auto1, as the main example. Their Autohero is the leading fully digital car retailer in the EU. On paper, the value of this company has increased enormously in recent years, making it very successful, but there, too, no profit was made until the last quarter. Apparently, it is on the right track, and that’s good.

Back to Carvana

Would you rather seem like a successful and good entrepreneur with high turnover, boosted quarterly figures, but still lay off 12% of the staff via Zoom? Or would you do it differently? I know, I would choose to have a healthy, transparent, and trustworthy relationship with both my customers and my employees.

I know, I would choose to have a healthy, transparent, and trustworthy relationship with both my customers and my employees.