clutchcargo

I hope things are not as bad as this picture.
When Covid hit, nobody had a good answer for when things would normalize.
Folks were stuck at home.
As a landlord I saw a shift in more singles renting 2 bed apartments so they could Zoom in a room without a bed in it. Basically wanting more space and better space.
I have a buddy who does office space, folks ain't in a big hurry to go back to the office, his vacancies are up, rents and valuations down. No near term expectation for improvement.
Folks felt that public transit was less safe regarding infection risk so they got themselves new vehicle to get to their normal points a to b and to go new places they were going because they weren't getting on a plane to Vegas.
Why is a used car dealership with a national foot print worse for consumers than a local guy who is unsupervised. Many of these folks are great but the Joe Shmoe consumer kind of has to hope for the best when they are working with an independent (no corporate entity to reach out to when you have a problem, not saying the corporate entity will take care of you come rain or shine).

ealand0001

Carvana’s founder’s father, Ernest Garcia II is a felon, convicted as part of a savings and loan scandal. The whole drivetime (Garcia the second’s company) and carvana, that Garcia the third runs, is an entangled mess. The details about that structure can be found on the internet if you are interested.

Carvana has been bundling sub prime loans and selling them to Bridgecrest Capital, which is owned by….drumroll… Drivetime. The same Drivetime our felonious father owns! This article goes into great detail on the possible Ponzi scheme they are running: https://seekingalpha.com/instablog/7...nzi-collapsing

there is a lot more to the story involving drivetime and how that plays into all of this…If you look around on the web, you can find a lot of details. I have personal experiences with a few of the top people at carvana and I’m not a fan, lol. But, don’t take my word for it, there is plenty of evidence and data that says some people are most likely going to jail before this is so said and done.

TheDonEffect

To answer the question directly, yes I believe the bubble will pop. Frankly, that's the easy question to answer. The more difficult question is where will be the new floor.

I have now sold two cars to Shift, but shopped the three "tech" used car companies. Fundamentally, my problem with them from a market observer standpoint is that their pricing is not competitive in the traditional sense, rather it's competitive due to an ulterior motive- they're trying to outlast each other in the market.

This is the problem you're seeing in virtually every industry and type of business, and without going down too far the slippery slope, it's killing the ability to achieve the American Dream for most people. Winning in today's business is done primarily by who can raise the most funds and therefore price out to kill off their competition. In the used car world, the mantra is buy right, sell right, meaning the business is based on how well you buy cars, selling is secondary. If your lots are full of great product you can price high after buying low, the sales are practically automatic. Carmax was the first to pretty much strong arm the mom and pop stores by paying a premium at the dealer auctions, so much so that they now have offices and their own lanes in virtually every auction house. For a while, their prices were also better than most of the mom and pop shops, and also benefitting from being able to build large, visible facilities.

The tech used car lots took the same principle but applied it to the other used car dealer honey hole- private party sales. They then get into a bidding war to ensure that their competition isn't able to buy the cars.

The problem is that they're run by morons, I mean how can you pay more for a used car that seriously you could just buy from a dealer new? I mean it's seriously idiotic to the point I began to think that maybe I should just keep buying new cars, but before signing the paperwork get bids from the Carvanas of the world because oftentims I could get a deal that's less than (out the door) what Carvana is willing to buy. In the effort to pick up dimes to price out their competition, they're stepping over dollars by actually running a business.

This in turn created this ridiculous situation in the market, and couple this with the perceived EV event horizon, the enthusiast market just got nuts.

It's very similar to every market bubble, like the housing crisis of the late aughts, banks were writing mortgages because if they didn't their competition would grow and then beat them out of the market. The end result was they got bailed out while many consumers got their credit destroyed/lost their homes/etc.

In any rate, good riddance. Fortunately, I was able to somewhat take advantage of this when I sold my Shelby, Mustang, and Miata, so I was able to ride the wave gracefully as my timing was fortunate, but having had to shop for others the frustration was palpable.

Further, banks writing 6, 7, 8 year loans on cars at rates right around inflation is irresponsible. It benefits no one, it just artificially creates demand. Which is why a Honda Civic Si today costs 29k, why a Mustang GT starts at 40k. Everything has gotten ridiculous. Things don't need to get more expensive, matter in fact alot of consumer goods actually get cheaper with technological advances and such, just look at the prices of TVs, computers, etc- for the most part they're getting cheaper or getting leaps and bounds better. The Civic Si still only makes 200hp, the Mustang at least will make 500 but still. Items that are mostly bought on credit or through insurance have spiraled out of control. Cars, houses, and pretty much anything medical. Everything else for the most part has remained steady.

Today in the Bay Area CA I passed by gas station that had gas at 3.95 after I saw a gloom and doom piece in one of the national news outlets talking about how we're doomed to pay 5 bucks forever. I knew it would come back at some point, and I'm definitely no genius, it's pretty much basic price history, a little poli sci, and economics.

But once the cat is out of the bag rarely do sticker prices go down, if anything they just got negotiated down. But I also think OEMs are going back to a more just in time approach because even the old super dealer model I think is becoming antiquated. Virtually every other consumer product is warehoused somewhere that has cheap rent, and local inventory is just enough, this notion of overstocking a dealer with 100s of cars is ludicrous, especially in high rent areas.

Anyway, I'm babbling now, I hope to God the bubble bursts, because I hope to pick up a GR86 or ND2 RF in a few years for relatively cheap just like the good ol days.

SlowTeg

Very interesting. I haven't had the need to deal with these car dealers (Carvanas/etc). I had no idea they had such a big effect/role in the marketplace but that's usually a losing business model long term trying to corner the market and basically artificially raise prices. The spread being so tight between new/used car prices has to widen in my mind as well (crazy it's gone negative in many instances). This will certainly hurt these dealers that overpaid with huge inventory but how/if they get liquidated will definitely determine how badly the market is affected. While the initial demand post covid was strong (with weak supply), I have to wonder to what degree people are driving less in the post covid/teleworking days we are in (meaning the long term steady demand trend of cars is lower). Of course if supply is constrained that trumps the demand destruction.

On another related note I haven't read anyone actually delving into the supply chain issues regarding chips for cars. We are seeing/have seen chip demand fall sharply in the last year for computers, but what exactly is the issue with chips for cars? My understanding is many chips used in cars are the lower margin/older tech/larger die sizes that are at the "back of the line" in terms of foundry production so it will take a while for companies like TSMC to reallocate factory time to building more of these chips (being low margin they are less incentivized over newer chips) and get car manufacturers to higher production levels. Who knows when the production of the car mfr chips will normalize or how bad the problem really is..?

roel03

There was no way the prices Carvana was willing to pay was sustainable. I sold two cars to them: my FR-S and my ND1. They bought my FR-S for 9k over what I paid for it years prior and I traded it in the day after a Sebring weekend without even washing or taking my track pads off, with snow damage as well. Then they paid 2k less than a brand new ND2 for my ND1. Both times the sale was done in less than 5 minutes and they never did anything but check the VIN of the vehicles. While it was great on the seller end, I've browsed their stock and there is no way I would buy from them.

In the short term companies like Carvana and Zillow seem great, but it would definitely come back to bite the consumer if they succeed in the long term.

SlowTeg

Wow.. what happened to Carmax? I remember when they were big before Carvana and others. Sounds like Carvana was just overpaying.. great way to get marketshare but also great way to go out of business long term if you can't be profitable.

I'm not sure what the financing/financial situation Carvana is in, but if it's like other big tech, the gameplan for a long time has been get marketshare and figure out how to make money later. Amazon, Uber, etc. Early on they're about taking marketshare (without concern about profitability) and driving out the competition and after a while they become just like everyone else and have to raise prices to turn a profit.

Jub

I think consumer "protections" for a corporation vs. Indy shops are just different. Hard to say one is better than the other, IMO. Corporations theoretically have more resources and scale on their side to help them absorb the financial cost of a bad sale, etc. Indy shops theoretically have less ability to absorb the negative impact and may be less apt to eat the cost of a deal gone wrong.. Conversely, national corporations also have a lawyer and "customer service" infrastructure in place to insulate them from claims. Indy shops generally have a small operation and operate based in community trust. One bad interaction can sink them and they know it. I don't think that dishonest indy shops can last very long where bad franchise locations can hide behind their larger network and the corporate structure to insulate them from consequence. IMO, customer service almost always declines as scale grows. Customer service has gotten so bad in almost every large industry. If customer service isn't willing to acquiesce to your request, your options are to try to escalate to someone who actually has the authority to help you or to get frustrated and yell at a low wage "customer service rep." Seems very rare to actually get to someone who has authority to do anything for you and it only happens if they're genuinely afraid of consequences. IMO, big corporations now hide behind their "customer service" department to avoid consequences. You'd have to spend so much time trying to actually get ahold of someone who can do anything and if you end up in court, they have vast resources to deal with it and insulate their losses. Pretty cynical take but I do believe that whether it's intentional or not, corporations have generally put customers and customer service at odds with each other when those two parties rarely have the ability to actually do anything. Like HR protecting companies from employees, I think customer service in larger corporations evolves to the point that it's there to protect the company from customers.

At a small shop, they need to have a relationship based in trust with their customers. The people you talk to are generally involved in the business and not just a customer service rep that takes negative calls all day while trying to act nice but their only real purpose is to insulate the corporation from losses. If you have a deal gone wrong, typically you're going to end up talking to a GM or owner pretty quickly. They don't have the same red tape as the bigger corporations and have the authority to make a quick decision to make things right or not. The downside is that they may fight harder because they don't have the scale to absorb the $$ impact of just giving in to make things right. They also likely don't have the same kind of lawyers and litigation experience/protocol if you do have to go to court. I think you'd have a more down-to-earth case without as much corporate bs to obfuscate things further.

I certainly have a bias towards small business but I don't think it's completely unfounded. I think the quality varies more widely but is easier to figure out bad apples before something bad happens. If you're a repeat customer, I think you also have a better ability to form genuine trust than with a big corporation.

I'm not up-to-date on the chip shortage stuff but I think for computers, the demand was for two reasons. People working from home and staying home more in general required employers to mass buy IT equipment. People also spent more time on computers and may have wanted to buy a new one. The other part was the Crypto boom and everyone trying to become a crypto miner. Taiwan conflict could completely change the chip landscape as a whole.

Maybe I was wrong in asserting that the Carvanas of the world were not using price setting powers via "estimation." Online buy quotes are essentially the "Zestimates" of the car world.

clutchcargo

My simplified understanding of the chip thing was:
Covid hits, the planning departments of the Toyotas of the world say recession coming, cut orders for everything.
Chip foundries look at order cuts across business served and plan for a period of reduced output.
Government dumps tons of cash in the economy and people make buying decisions based on their new Covid life circumstances and start buying stuff like it's booming economy time.
Result, no new cars to look at the the dealership, people settle for newer used units bidding up prices.
Orders go back up for chips but there is lag time to meet this demand.
Odd impact for me, when getting the winter wheels and tires swapped on the NSX last month, the dealership had no sedans in the loaner fleet and gave me an MDX (I don't like SUVs) with 3 miles on it.

SlowTeg

Ya that sounds right. I'd be interested to hear more details about the lag times and how things work and are scheduled in foundrys (the factory for building chips) which would help explain why and how long the chip delay is going to last for many things. Everyone just says "should be better by XXX" but we don't have any of the logic/reasoning that goes into that prediction.

sam_spider

Completely agree on the selling to them. No different than a dealer buying your car, except Carvana actually gives you decent money and don't care if you buy anything from them. Carmax has been doing this long before the others came around.

I haven't seen Carvana (and the others) overcharging like some dealers, and there are no hidden fees like dealers have been doing the last few years. The idea of skipping a dealership for all the bs you go through is a novel idea and I like it.

We sold a car to Carvana a year ago, stupid easy process and I'd definitely go that route again versus trying a dealer or private party.