Carvana Faces Heat Of Slowing Demand, Higher Interest Rates

On Friday, Carvana Co CVNA cuts its workforce by about 1,500 people in its second round of lay-offs to match its size with the current environment.
According to analysts, its weakening finances mean raising funds would be difficult and costly, and it could run out of cash in a year.
Carvana’s interest expense nearly doubled early this year when it paid up to get financing for an acquisition.
In February, it agreed to buy a car-auction business, ADESA Inc, to help boost inventory. Car sales slowed, however.
Its cost to finance car purchases is up by three-quarters this year, and some of its real estate has lost value. Meanwhile, car buyers are holding off purchases in the hope that rates will fall.
Wall Street Journal writes that Carvana became wildly popular among car buyers, with heavy advertising and haggle-free cars delivered to their doors.
Carvana thrived when interest rates were low. Its credit line from Ally Financial to buy cars had an average 2.6% interest rate last year, compared with 4.5% at the end of September.
S&P Global Ratings warned that Carvana’s liquidity likely would erode faster than expected and changed the outlook on its CCC+ rating to negative earlier this month.
After closing the ADESA deal, it laid off 2,500 workers.
Price Action: CVNA shares are down 4.84% at $7.67 during the premarket session on the last check Monday.