The ecommerce secondhand car reseller, Carvana Co., which emerged winner during the pandemic, is scrambling to save money as the once-abundant financing choices dwindle and business declines.
Carvana made around 1,500 layoffs on November 18, 2022, its second wave in the last six months. Due to its deteriorating finances, raising money would be challenging and expensive, and the company risked running out of money within a year. As reported by the company, its long-term debt increased significantly in the third quarter that ended September 2022 over that in the previous quarters in 2022.
Increasing interest rates affected Carvana more than other businesses. The real interest rate in the US declined significantly in 2021 at -0.9% over that in the previous years, according to GlobalData.
When Carvana Co. paid upfront to obtain financing for an acquisition at the beginning of 2022, its interest costs nearly doubled. In 2022, the cost to finance a car increased 75%, and the value of some of its real estate decreased. Meanwhile, prospective car purchasers are waiting in anticipation of a decrease in rates. Its share prices more than doubled because of investor interest. Since reaching a high in 2021, the stock price decreased more than 97%. The price of Carvana's bonds is currently in difficulty. S&P Global Ratings warned earlier in November 2022 that Carvana's liquidity was likely to decline more quickly than anticipated and revised the outlook on its CCC+ rating to negative. It claimed that the company's ability to raise more funds from holders of stocks and bonds declined.
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