That they lost gobs of money every year didn’t matter until suddenly it did. But now there’s a new challenge heading for them.
By Wolf Richter for WOLF STREET.
On its first day of trading after its IPO in June 2020, shares of Vroom [VRM], an online-only used-vehicle dealer that has lost piles of money every year, more than doubled from its IPO price of $22 a share, amid enormous hype on Wall Street. It then proceeded to skyrocket to $73.87 by September 1, 2020. And then the hype started to leech out, and on Friday, shares closed at $7.06, down 90.4% from the closing high (price data via YCharts):
Looking at a chart like this gives me the willies because it proves that there is something seriously wrong with how money-losing companies in well-established profitable industries, such as selling used vehicles, are hyped to retail investors and even asset managers as disruptors that are going to change the world, and these disrupters don’t need profits because who cares about profits when you’re changing the world.
And then the Big S hits the fan, after Wall Street banks and the insiders made huge amounts of money. That’s when other folks get cleaned out, having bought into the hype, and some unknowingly by having invested in funds that held these shares. This is now happening with hundreds of companies.
Carvana [CVNA] is the original online-only used-vehicle dealer that went public in April 2017, at an IPO price of $15 a share, with miraculous performance. It was very effectively hyped, and it lost money in each of the past six years, and in increasing amounts – the more it sold the more it lost – but no matter.
And all the hype worked until August 2021, when shares topped out at $376. So that was a good ride. But that was it. On Friday, shares closed at $145.99, down by 61% from their high five months ago:
Selling used cars is very profitable – if you understand the basics, including not overpaying for cars. It’s profitable even during tough times, when new vehicle sales struggle.
For the past 18 months, the industry has been in the hottest used vehicle market ever, with retail prices spiking to silly levels, and with people paying new-vehicle prices for two-year old used vehicles. This has generated huge per-vehicle gross profits for dealers across the board.
But Vroom and Carvana still lost money. They weren’t created to profitably sell used vehicles. That was never the plan. It would have made them look like one of the other fossils. The plan was to grow no matter what, while burning investor cash, and to bedazzle investors with that growth, and distract them from the miserable bottom line. They were created to enrich Wall Street banks and insiders.
They sell cars online and then deliver the vehicles to the buyer, or the buyer can pick them up at a giant vending machine. And that makes sense if you sell your vehicles for the right price so you can make money.
But to get that limitless growth, they buy cars in large quantities at prices that are too high for their aggressive selling prices, and the gross profit is too thin for the company’s cost structure, and the result is that they lose money year after year. Anyone can sell used cars if the purpose is to lose money.
The largest used vehicle dealer in the US, CarMax – it has been around for decades with numerous large stores around the country and has been very profitable – also sells cars online, and you can even come in and test drive it, which is a great idea with used cars, and if something is wrong, you can unwind the deal on the spot and don’t have to jump through the hoops of unwinding a completed deal of a car that is already in your garage.
The retail operations of rental car fleets, such as Enterprise, also sell their cream puffs online or at their many retail stores, after they come out of rental service. Rental fleets have the advantage that they bought the vehicle new at a huge discount directly from the automakers and know what it has been through.
So now there is another complication waiting for the industry – and the good ones are going to be able to deal with it. But for Carvana and Vroom, that are already losing money in the hottest used vehicle market ever, this is going to be an opportunity to lose huge amounts of money.
Used-vehicle wholesale prices have spiked by ridiculous amounts. In December, the Manheim Used Vehicle Value Index was up 47% from a year ago. But Manheim, the largest auto auction operator in the US, pointed out that the underlying dynamics that already started to shift at the end of November, shifted further by the end of December:
Dealers around the country have bought their inventory at these ridiculous prices, and they have passed on those price increases because consumers paid no matter what. But they also still have a lot of this ridiculously priced inventory sitting around. And in January, they’re still paying those ridiculous prices at the auction.
Used-vehicle retail volume has declined but not because there was a shortage. Supply of used vehicles in terms of the number of vehicles on dealer lots hit 51 days in December. In 2019, supply had averaged 48 days. So in December, there was above average of supply. This occurred because used retail unit sales dropped 5.6% from December 2020.
These dynamics indicate that price resistance may be in the process of coming back, that enough car buyers may be getting second thoughts about those ridiculous prices. And if sales slow further, dealers will once again compete on price, but now they’re sitting on this high-priced inventory. Even if prices unwind only a little bit, there are some big losses waiting to happen for used vehicle operations that already have a problem with paying too much for vehicles, such as Vroom and Carvana, our internet-only darlings that cannot make money even in the best of times, and are superbly positioned to get run over by those developments.
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I read the entire thing, and I didn’t see Cathie Woodshed mentioned. She must be beaten to a pulp by this point.
One thing I will say about these used car dealers paying these prices at auction – they kind of have to. If you have no cars to sell, you are out of business. The whole thing is feeding on itself. It’s kind of like builders – they build, even in down markets. They’ll build themselves right into bankruptcy every single time.
Now they have plenty of cars to sell :-]
Good. I hope Carvana gets burned to a crisp. Buh-bye.
And one can only hope this leads to an implosion of the used & new car markets. BOOM!
I miss the old McLaughlin hour
And start to take the entire ‘disrupter’ market down right along with it.
I see many new car dealers in my travels. Some have a large used inventory and others have empty lots. So it appears those with empty lots will have a chance a at the auctions to buy the high priced mistakes of their competitors if wholesale prices continue to drop. Will retail buyers buyers lose their inflation frenzy buying habits that the well stocked dealers love? Tough call for dealers.
The dealers that don’t have their lots packed with cars are likely to have gotten skittish about those prices and are keeping their inventories tight in order to not get caught by a decline in prices. It makes total sense to be careful in this environment.
I work at the 14th largest used car lot, we sell 450-530 a month and have over a 1m-1.4m in gross every month. It’s simple don’t over pay for cars. Had some one trying to sell a 2021 forte gt2 for 28k, it was 25k when he bought it new. To generate business you have to price things right, and to do that for a profit you have to buy at the correct price.
As a practice, when I am bidding against Carvana at the auction I always bid them up $1000 more than a dealer who is operating with their own money would, then I drop it on them. Their buying behavior is clearly about market dominance and since it’s not their money they don’t care.
So the “pure” entrepreneur is now possible?….making his money off an idea….ONLY!
As in no more inspiration and perspiration?
I think Pharma/Biochem/MolecBio trade a lot in patents, even for discovering “natural” stuff, and the techniques used.
This system is even sicker than I EVER thought.
And do they REALLY have these “car vending” machines, or just one mock up for the ads? Do they “work”, or just storage?
(too lazy/disintrested to go to You Tube)
Also with these “create, make deals, hype/sell, cash in and clear out” modern “entrepreneurs” (born of American Exceptionalism, I believe it’s touted as), there has to be a way for a smart economist to calculate the beating the (fewer all the time) people take for “dollar cost averaging” into these Index Funds.
Something Bogler didn’t count on?
Seems similar to kiting checks, only you never get caught…the kiting trail just ends……I wonder what new financial laws lobbyists passed to enable this? Liz probably knows, for what good a rant or two in the Senate does….nobody understands or has time to…..
As Soros said at his dog and pony show investigating his shorting behaviors during the GFC, “They can invent this stuff faster than you can ever pass laws to stop it”. In other words, even if all congressmen were totally honest and doing what’s best for the country, they still couldn’t stop “financial engineering”….it’s gone too far.
We need a MAJOR RESET of some kind, or this crapp won’t stop….even the damn Biblical record says so.
UNILATERAL CLASS WARFARE is a bitch, and only get’s worse.
I just saw a huge SURFING PARK was going to be built in Palm Springs!!!!!!…..guess God or the Free Market decided it was needed…..
Obviously I need a Leap of Faith or much stronger pain pills.
So happy to see the jerks that are still screwing me on a car are getting taken to the cleaners.
I would not be surprised if a major class action support suit gets filed. I’d join
Snake oil salesman is an insult to Snake oil salesman.
You’d end up getting a tank of gas 5 years from now, and the lawyers get 1000 an hour, plus a big hunk of what’s left after costs. If they win – if they don’t, you get schadenfreude, no tank of gas and they worked for free.
The class action industry is a racket, and the cure for high prices is high prices. Wait, usually not too long.
Oh I knew this. They bought a 2016 Jeep Patriot 5 speed manual no electric anything and I did not even have a front passenger seat. There were 42k miles on it.
I paid $11k in 2017
They gave me a check for $19500.00
And I sprinted to Wells Fargo
Don’t ever buy from them it like a blind date you have no idea who coming around that corner on a flat bed.
Agree, like totally dude or dudette,,, after reading on here,,, SOLD my ’19 RAM, and sprinted to the bank to clear the check!!!
Reminded me very clearly of the days working for general contractors who actually told me to sprint to the bank to cash my paycheck,,, because he knew very well that the first ones there got the cash…
”May we all live in interesting times.” becoming more and more appropriate to NOW… eh?
Seriously, you get a cheque and have to physically go to the banks! Get into the 20th century people. In the UK I recently sold mine and with an extra minimal fee had the money in my account within 15mins.
Have to love how you investment types like to make all this stuff out to be so much more complicated than it really is. Carvana is being shut down left and right, loosing their dealer licenses in town after town, state after state for registration and title fraud. That is the real reason they are bound to die off soon.
It’s not title fraud (fraud requires intent) … it’s an administrative clusterf*ck by companies that were established to change the world but are lax about following regulations of the world.
Both Carvana and Vroom have this problem.
The issue is this: Depending on the state, dealers have 30-45 days to transfer the title. This requires some paperwork. And if there are issues with the original title it gets more complicated. Dealers that don’t comply with the state title transfer laws face fines and ultimately suspension of the dealer license.
These online dealers came out of nowhere and suddenly are selling a huge number of cars, and then they didn’t staff up their office operations to handle the flood of title transfers.
Both Vroom and Carvana are in trouble over this. In some cases, the ball gets dropped and it takes them forever to do the title transfer, or they fail to do it, which is a huge expensive problem for their customers.
These companies are eventually going to fix this issue, which means they’ll have to hire a lot more people during the labor shortage. And meanwhile, they’re getting sued by their customers, including class action suits. Some states have threatened to suspend their local dealer license if they cannot get this fixed, and they put some deadlines out there.
It’s a total unbelievable clusterf*ck. But this kind of shit happens often enough with startups whose sole goal is growth, and bamboozling investors.
Agreed. If you’ve never ran a dealership (or any company for that matter) it’s more behind the office work than retailing to customers. And we haven’t heard anything about their contracts in transit when they finance a customers loan.
They have cars to sell and their days supply is increasing due to the fear of loss has abated and customer are not going to pay these inflated prices. Just use V-Auto to see the number of days in stock of vehicles. It is rising quickly.
I’ve become paranoid about driving my truck. I have such back luck that I fear somebody totaling me out so that I have to be in the market for another truck. It gives me chills just thinking about it. Being in the market for a vehicle right now is like walking around with a SUCKER sign on your forehead.
DC
Same here. I put a couple of big “STUDENT DRIVER” stickers on the front and rear windows of my 2000 Toyota. They work. No one gets near me. Try it.
Haha. I love it.
Now if your truck is like mine, bought used for $2.5k (year before Covid), 200k miles, faded and a couple of dents on the fenders, they instinctively leave a wide birth for me barrowing down the freeway!
Boom! I love it, no worries. I leave the clean Subie at home…
’07 Ford e-250 work van, big, dry and safe for tools/materials, anonymous and unnoticeable, bigger is better than allstate when a phone-drone rear-ends you, insured or not. 15mpg, but worth it. Safer than my old tacoma. Shiny pricey pickup trucks are an affectation for people who don’t work them, and another boat payment for their mechanic. Trucks were cheap to buy, operate, and insure upon a time, because they were for work.mine are.
Swamp and DC
Student Driver sticker next to the END THE FED sticker….
that should do it.
Yep, I’ve got an END THE FED STICKER. How did you know? Also I’ve got a sticker “EPSTEIN DIDN’T KILL HIMSELF”.
I look like a right wing nut. No one comes anywhere near me on the road.
GOOD ONE SC,,, many thanks for the reminder!!!!
Just checked, Below the “END THE FED” is a footnote,
“Arrest the Banksters”
I used to have a bumper sticker
“Minimum Wage for Congress members”
I got high fives from multiple truckers when I was going over the George Washington Bridge over the Hudson river.
Swamp Creature-
Great comment.. concise, hilarious and useful.
Had some artist friends that were going to make and sell a “Honk If You Pee In The Shower” bumper sticker in mid 70’s….they never did it, but it’s the only sticker I ever wanted to have. Also saw a “No On Prep H” sticker once on 80 near Sac.
Ditto, carefully nurturing my old small truck, absolutely terrified to have go into this market either new or used to replace it right now.
DC I wonder about that too. Somehow I doubt that insurance companies will pay off on a price anywhere near what one would need to replace and older car.
endeavor
You got it. They don’t pay squat. Geico tried to total my 2005 Nissan Sentra after a minor fender bender. They had a formula that if the car’s repair cost was 80% of the Kelly Blue book value then the vehicle would be totaled. This is standard practice across most ins companies. They said it was the law in Maryland.
The ins company makes out on these deals. They get the title of the car after it is totaled, sell it for parts, recoup all the money paid out to you, and then raise the ins premiums on their client who was at fault for the accident. It’s a win, win for them, and lose, lose for you. You get nothing but a check denoted in worthless US dollars and have to go out and buy a 40K car and pay interest to finance it.
It would be instructive to see the business model that insurance companies use for total payouts, recoupments via parting out and other revenues and expenses.
Does anyone have access to something like that?
You don’t have to accept the insurance company’s cash offer to take the vehicle and junk it. If you like your vehicle, accept the insurance company’s offer and tell them you want the vehicle. Take the vehicle to a low-end body shop or mechanic. Tell them what you want to pay to have the car fixed. They’ll either fix or replace the damaged parts from a junkyard. A colleague has had her +20-year-old vehicle totaled twice. This works if you don’t care about cosmetics. Lots of time and costs required to match body part paint.
Tom
This sounds like a lot of work. Especially for an accident for which the other party was at fault. I spent over 20 hours every time my Nissan was hit (9 times) just get whole. What a waste of time.
It seems to me that selling used cars is a hands on business. Back in the early 2000’s a college friend of mine was working in the finance department of a nationwide auto dealer conglomerate out of New England. They purchased a big multi brand multi store dealer here in PDX that was very profitable but well known for back room Flim-Flam antics. After they took over they had to run it by the book as they had to toe the line with regard to consumer protection laws etc as a publicly traded entity. After that the profits evaporated and they split the thing up and sold it off in pieces. Some things are better left to the guys with the toupees and late night commercials
Sounds like Thomason…..
Give the man a Kewpie Doll! Another friend of mine was a ford factory rep back in the early 90’s. Said he had to take a shower after having a meeting with “scooter”.
Maybe it makes sense in a world where cash and bonds and most stocks practically guarantee negative real returns that investors are willing to subsidize businesses rather than expect profits. Negative real rates and arbitrage across asset classes … is it possible years of artificially low interest rates encourage destruction of wealth?
I just wonder what long term economic effects to expect when the whole system of capital allocation is geared to loss.
99+% of stock buyers are speculators, regardless of what anyone calls them. Any profit they make is predominantly or exclusively from price changes by buying a piece of paper, not “buying a piece of a business”. Even more true now where the dividend yield is a complete joke but supposedly “competitive” due to TINA from a bond mania.
Calling stock buyers “investors” is a rationalization because “investing” sounds a lot more prudent than speculating. It’s another form of marketing.
Real business owners have a voice in setting corporate strategy and are in a position to economically monetize cash flow (earnings) and corporate assets. The typical stock buyer can do neither.
As for your last question, when a society wastes its capital for decades on a colossal scale effectively eating its seed corn, it’s guaranteed to end up poorer or a lot poorer in the future.
That’s why I keep stating it here.
This isn’t limited to cash burn machines either though they are among the worst. It’s done by households, corporations and especially the government.
AF-a fine modern definition of ‘investor’- yet so many, over and over again, are “…shocked, shocked!…” to find gambling in the casino…
may we all find a better day.
I also wonder when “trader” replaced “speculator”…late 1800’s?
Augustus Frost: “99+% of stock buyers are speculators, regardless of what anyone calls them. Any profit they make is predominantly or exclusively from price changes by buying a piece of paper…”
That is what I see too. When their stonk price goes up, they shout it from the roof tops. When it drops like a rock, they go silent. Lately the gamblers I know have been real quiet.
I had the stock market figured out as a pump-n-dump casino way back in the 1970’s, when the “nifty fifty” was all the rage.
The entire cheap and easy disrupting “high tech” industry is nothing more than frauds that can be propped up for a year or so after IPO so that the “founders” can make their fortunes.
Precisely 2Banana. Which reminds me of an ongoing joke some friends and I had during the dot com boom.
The day after a well-hyped local IPO of a “disruptor” online company, a business reporter spots the founder at the airport. The reporter decides to try and get a brief statement about the future of the new high tech darling.
“So Mr. Smith”, he asks, “how do you think the company will do now that it has gone public?”
“How the hell should I know?” Mr. Smith replies. “I sold all my shares yesterday and resigned. Now if you’ll excuse me, I’m catching a plane to Bermuda.”
The Disruptor is the Fed. It has disrupted the business is profit connection. Printing money for Wall Street has resulted in many offspring disruptors, some of them incredibly profitable after killing off the small competition. Some of them never profitable because the business model, note above by Wolf, was just a scam. But the founders and initial shareholders, backed by the skimmers in the IPO backrooms, all got very rich.
Such is Socialism at the top, the law of the jungle at the bottom.
Make that “rugged individualism”…most all the patsies have even been taught to be very proud of their role in society….What a PR coup!
2,
“for a year or so after IPO”
A discussion of how IPO underwriters require 6 month and 12 month share “lockups” for insiders in IPOs would have been helpful.
Like everything else, share prices are subject to supply and demand.
And once insiders are allowed to sell/dump their sizeable holdings, that is a lot of supply that may not have nearly as much demand from outsiders…so prices fall dramatically to clear the mkt.
But that can only happen after the “lockups”.
On a semi related note, few people realize that most IPOs only sell 10% to 20% of shares outstanding on IPO dates.
The vast majority of shares are held back by insiders, VC firms, underwriters, etc.
So the hyped up price-demand on IPO date is driven by only offering a small minority of shares…to the most hopped up IPO buyers.
Trying to find equally paint-huffing buyers for the other 80% of the shares (after lockups expire) is substantially harder.
A fool and his money are soon parted.
Misery loves company. Seeing people pay way too much for a used car softens my irritation that my wife “restored” her 1976 BMW out of sentiment for the good old times. It was her first car, which she bought used around 1984, when it was imported from Germany to Thailand.
Her BMW had sat outside in the weather for a couple of decades. In my view, fixing it up has been a waste of money, and the overall result is uncomfortable, with too many kludge fixes, and still not close to being suave. Luckily labor costs are quite low in Thailand.
With its bright, lipstick-red paint job, I would call it lipstick on a pig. But the engine she had installed is a rebuilt Toyota engine. So I can’t think of what to call it that would express my dislike. And she says it is still considered a “classic” here in Thailand. 😂️
That’s called a Frankenmobile. A Toyota engine in a BMW? UGGGH.
A 1990 2.5 liter 1JZ from Toyota is a beauty of a power plant. In ’91 the 3.0 liter 2JZ was added. Inline-six, to go, please.
The new Toyota Supra is a BMW Z4 after all.
Dan-a good take on the insidious contemporary power of a ‘designer label’ vs. actual product performance (know a number of folks much happier with a small-block Chev in their XJ6…).
may we all find a better day.
What happens if you pick-up a used vehicle at the ” giant vending machine” and the check engine light is on. Walk away? Is there a human there that knows what the check engine light is. I am sure they put the onus on you the customer. E-Bussiness has a well earned reputation of cutting and running and then hide from the customer. It takes a lot of due diligence with a used vehicle to check it out unless it’s local. And I mean local. Not a guy that knows a guy bullshit. That business model of Internet buy and pick-up for my money was bullshit to start from my cynical perspective. I am a Ludite when it comes to spending my money.
Buyers have a period (1 week?) during which they can request that the deal be undone. But this is a huge hassle for buyers — and expensive for the company — because the sale was already registered at the DMV, the loan was done, money was transferred, the vehicle was delivered, and now the whole thing has to be reversed. It’s not like sending your cocktail dress back to Amazon.
“It’s not like sending your cocktail dress back to Amazon.”
Ha ha good one!
Good advice for Janet Powell too on inflation – it’s not like sending your dress back ……..
Nothing mentioned about Carvana’s CEO and his felon dad, there have been some suspicious stock selling activity going on there. When the founder’s family is selling so much of their holdings. I think insider trading accusations are also scaring investors.
In Massachussets, if you sell a car to someone and it’s a lemon, you have to pay the guy to lease a car for a year.
Other than the fact that you are a ”neo Luddite” and speeled it wrong,,, I agree with you, like totally drD:
How anyone with any common sense would go for the model of ”used car” sales through the internet, is just crazy bad….
The Head Auto Shop (’10-’13) instructor said he had had (mostly women…sorry) people come in saying the “video camera light” (check engine) was on or the “harp light” (tire pressure). I imagine this was the new car when every 3 years bunch, too busy with their upscale things to be bothered with mundane auto stuff.
“Carvana is the original online-only used-vehicle dealer that went public in April 2017, at an IPO price of $15 a share,…On Friday, shares closed at $145.99,”
Not doing badly for a company that is losing money and IPOed at $15. nearly 10x in 5 years.
Not good though, for those sheep who now have to choose when to get their haircut. And the likelihood of more being sheared in the future.
Caravana has billions in debt and is losing money. Such a lofty valuation for a loser.
In a similar vein, look at all the real estate related companies that have been bleeding red ink for years in the biggest RE bubble in history. Redfin, compass, remax, invitation homes, etc. It’s mind numbing.
You are living in the past. This is the New Paradigm. Get with the times and buy more stonks.
/sarc
Go look at the structure of the company.
A tangled web of companies owned by a father and son (CEO of Carvana) provide much of the loans, car warranties, inspections, etc.
Also the father and son retain 85% of the voting rights of Carvana.
The Father owns Drivetime , a network of 130 used car dealerships. I guess it is the parent company on Carvana too.
I guess Carvana buys some of it’s used cars from another used car dealer….Drivetime.
That would be like buying used cars from Carnac to resell in their vending machines.
There are so many ways for Carvana to cook the books.
“How many shell companies does it take to legally screw most anyone”
Question on Univ of Goldman Sachs entrance exam.
What amazed me was that Japanese death traps like the 80s and 80s Toyota Hiace became popular that the Japanese market was exporting those death traps to the USA for premium.
Remember the Ford Pinto?
You mean the “Ford Fireball”?
Buddy and I drove (and parted out 4-5) Honda 600 sedan “death traps” ’80-’87. We loved them, although we pissed of a lot of people on the freeway. He said he and his wife going up the Waldo Grade was particularly bad.
But around town we could corner as well as a Porsche, and it’s not hard to stay off the freeway 99% of the time around here. The modern Mini-Cooper death trap is expensive as hell, as is the Smart Car.
Having bought many used cars and a few new ones I always had the most success with the small,one lot, independent Dealer that actually took care of his customers and had been in business for decades. Also my newest car right now is a 2006 Audi B7 A4. The last year of not crazy complexity.
Could there be a link between these online operations for used cars and the price being driven into the stratosphere? Meaning could the supply and demand be found between these players?
These two operators had vast sums of money to try buy entry into the market. Manheim was an auction participant with record pricing reports
Carvana and their Subsidiary Drive Time definitely drive up the prices at auction houses. I sell to them on a regular basis at an auction house.
Wolf,
Like Carvana, Roku is a disruptor, even more so than Carvana! Also high flyer up to $475 or so now less the $150. Difference is Roku is making a profit, and has more U.S. market share than Google, Apple and even Amazon. What gives? It seems like the Nasdaq is throwing out the baby with the bath water! Thanks Gerome.
Great article by the way.
They aren’t car companies. Like McDonald’s isn’t a food company. McDonald’s is a real estate company while vroom carvana et al sell used car loans the cars themselves are just a byproduct.
All dealers arrange financing and they make a ton of money doing that. But Vroom loses money.
It used to be that you went to a car dealership to buy a car. Now you are being sold a financial product. The car is just the “vehicle” used to sucker people into crushing debt servitude.
yeah, i knew american society had jumped the shark when i found out during the gfc that like 80% of ford’s profit came from their financing arm.
Are Carvana and Vroom really any different than Tesla? Tesla bled money for years making cars but has a tradable stock that allows many to get rich on speculation. It is almost as if the cars are secondary to the financial vehicle provided by the stock price and its manipulation. Heck, Tesla could just stop making cars and the stock could survive on its own just like a pretty tulip.
This article makes it very clear to me that these companies are started for the sole purpose of jacking up stock prices, the owners taking profits and letting everything go in a fairly straight line to nothing fast.
Brilliant really. I wish I knew how to do that!
But at least Tesla makes profit selling regulatory credits and bitcoins.
Used car dealers acting like … well, used car dealers?
Who could see that coming?
Can you hear it?
The ‘oh’ of by those who realize that what is in front of their contact lenses is not what was in their mind’s eye.
They bought ‘disruption’ as concept. Disruption is a temporary concept as success results in a change that most likely ends that period of disruption. The concept was hyped for as long as it’s sense of novelty could be maintained. Then dumped.
Pass the parcel, but without a prize at the end.
Bitcoin may well for different reasons wind up the same.
That and additional other reasons, I mean.
Tim Tim: To your point about disruption. Everything that got shot out of the money cannon was called ” Disruptive” and de-flationary to boot. In fact some of those CEO’s who fired the cannons, for their benefit, are all over you tube claiming this will somehow bring down the price of chicken but they don’t say how. Good riddance. Powell needed to get a jolt from a cattle prod every time one of those loser, mal-investment money burners lost 10% .
Carvana listing hundreds of used cars at higher than dealer prices on Craigslist here in New England – hard to understand what they are doing – who are buying these cars and will they just have to dump them when it’s over?
Yup – Same in NY Craigs List for cars & Stupid Useless Vehicles is now Carvanas List. Is that a marketing plan? Have the highest price cars on that channel….
Are the same people running Carvana who were running Zillow’s house purchase unit?
To change the subject back to the underlying reason for this story; where the entire banking and investment advisory industry are deliberately hyping up an unprofitable companies shares; then dumping their holdings to take a massive profit; while leaving the poor retail investor . . . to carry the losses; was always seen, by authority; as a criminal action, needing a jail term. So excuse the question; what happened to “authority”? When I first started out investing in shares, 1960’s, that was a well known, and always actioned . . . crime. Big news in all financials. So, why not today?
Whose political fundraiser is paid by whom.
US financial regulation is now and mostly has always been driven by *disclosure* and not prohibition.
The fact that these turds are losing a lot of money isn’t hidden…it is simply ignored.
(That is why a lot of market observers openly/frequently wonder, “Who buys this sh*t?).
Promoters/sellers of these hugely overvalued shares are guilty of shameless (non-criminal) hype…but the buyers are guilty of terminal laziness and ignorance.
There is plenty of blame to go around.
So, cas127, I can’t really tell if you’re calling for better regulation (very unlike you) or saying, “never give a sucker an even break.” You can’t have it both ways…
It’s funny how the same could be said for TSLA….?
Just a grander stage with a more convincing snake oil salesman?
Young investment bankers sneering at the old fool stick-in-the-muds who won’t get with the New Age makeover.
This is a direct sequel to 2000 dotcom era. Then, the marketing started to replace the innovation. The information asymmetries and hype were the same. This era picked up directly from that one. Same burn rate of cash, same crash. Oh, but this is the new new era. Goes back to South Sea bubble in England as the first direct precedent with investment securities, and the term “bubble” appeared.
So I’ll write you an online insurance policy on the car you bought from the vending machine, and I’ll buy your house for immediate cash, sight unseen based on my brilliant new AI algorithm. Who actually makes money here turns out to be pretty random, along with who goes bust, though many owners of shabby cars and houses sold to these fools at inflated prices and got some of the suckered investors’ money before it all collapsed.
I watched CNBC back in the late 90s. Some of the best advertisement of all time were aired back then.
Pets.com and their sock puppet comes to mind.
It takes someone who is completely ignorant of economics, finance and accounting to believe this BS. To that, you can add ignorance of human nature and history to believe that what is actually the greatest mania in the history of civilization is anything close to normal.
That’s what anyone who is buying at current prices is doing (buying into a mania) but when the mania ends, there is going to be even more recrimination than there was in 2000-2003 (which led to SOX) and the GFC (which led to Dodd-Frank). Go look at the history of government regulation back to the 1930’s. Always closing the proverbial barn door after the horses have bolted. Relying on the government for protection is hopelessly optimistic.
Reminds me of someone who recently commented here in another topic on “predatory lending” in housing. Unless it’s fraud, nothing predatory about it.
Ok, these people (realtors, mortgage brokers) may be or are scumbags but we’re talking about the largest purchase most people will ever make in their life. If someone is that clueless but wants to buy a house anyway, hire your own attorney or a financial planner to look at it.
It doesn’t take a math genius to realize what does or doesn’t fit into your budget. No one can protect someone from themselves.
What you are describing is a change in the culture. I was born in 1965 but based upon what you are telling me (and I agree), an entirely different ethical standard existed.
You can’t legislate or regulate that. If it’s really necessary, it’s another data point that society is falling apart.
It’s hard for me to feel sorry for the “retail investor” who gets sucked into these meme stocks, “profit someday” stocks and cryptos.
They are all chasing easy money but there IS no easy money.
Regulators can only do so much. As long as companies are not outright lying about their financials, well it’s up to the individual to spot the “too good to be true” story.
New York City, the heart of Wall Street and trading. The last 24 months many traders bet that life and work would be done from home, forever. I have friends who live there, everything is delivered. Finally, by the middle of 2021 Wall Street started to figure out people were leaving the house—DDS, M, KSS—department stores just one example. ROKU, PTON, CVNA, PINS just a few names of the “live/work at home” theme that has crashed. This market is very similar to 2001. The world of internet needed the smart phone in 2007 to succeed.
1) JP cannot raise interest rates until Europe blow itself and disintegrate.
2) If on Mon QQQ gap lower and turn down to 320 – 310 area, QQQ Jan monthly will be under Red Sept. QQQ will be terrorized.
3) Stitches on the chin is a good first round for JP and Putin.
4) AAPL in the cloud sent SPX to dma200 and T & K of the cloud, after 2 inside red bars.
5) That doesn’t mean that SPX will not recover. A red flatbed
in front of the cloud is waiting for SPX lower high.
6) Chop AI.
Fed is really, really behind where Taylor rule says they should be. I guess the the alcoholic is finding out it’s not so easy to put the booze down.
Michael, I like your commentaries. They remind me of a phenom. back in the 60’s called, “Free Jazz”: each musician was playing his or her own riff. Sometimes it harmonized, came together in a kind of gestalt. But most of the time it was random and disconnected.
Maybe you should offer readers a reference book along with these prognostications.
I remember that kind of jazz! I called random note music. I thought it was awful.
God, I must be old.
We’re both old.
Really enjoying ME too. Reverse engineer Michael Engel!
It was the Emperor’s New Clothes of jazz.
I went to art school in that era. Improvisation past a point is noise. It helps to burn off the excess cash and attention of go-go eras.
Abstract Expressionism = b.s. Sorry, this has nothing to do with the topic.
Michael Engle speaks FSS. Financial Savant Shorthand. If he was on CNBC he could do three hour long shows in ten minutes. Just think of the commercials they could fit in
Thelonious Monk.
“Thelonious Monk”
Hahahaha! Brings back memories.
Even as a philosophy major in the early 1970s I knew this wasn’t real music.
Was Monk an early disrupter?
He should have IPOed.
Monk is still better than some other kinds of music today.
Wolf Street is the best website on the net, not just for the great articles but the comments.
I have a bit of Monk in my vinyl and AIFF digital libraries. His “London Collection Vol. 1” from 1971 is just him on the piano. For me, it’s perfect background music for a Sunday morning in the kitchen or for having on while driving down the road.
He seems to miss the ‘right pitch’ once in a while, but it’s all part of the plan.
“Monk and Coltrane Live at Carnegie Hall” from 1957 is one heck of a set of music too, by the way.
I don’t understand anything he says – I skip over his comments.
He’s using trading terms, but English is also Michael’s 2nd or 3rd or whatever language. I can actually hear his accent in the way he types.
Zero profit taking so far from all the banks that are short the market indexes. I know how greedy they are. Late Friday was small time investors taking monthly profits by buying back the shares they were short as the plunge protection team pumped money into the markets.
More like small time “investors” buying the dip.
The failed Jan 26 high is < Sept 30 2021 close, that's huge
NDX : Jan 24 close > Jan 28 close, but Jan 28 RSI is higher, to be confirmed on Mon.
M. Engel: were you predicting 25 $ oil a while ago? I think I said then 100 looked more likely.
7) Option II : QQQ 5 min gap higher on Mon, but close < Jan 26 high : bearish.
8) Option III : QQQ 5 min reaction send it higher on Mon : bullish.
9) Mon is NDX judgement day.
Wolf,
My opinion is that your analysis about almost anything related to the used car business is among the best analysis available anywhere. Thank you for writing for us to learn.
Clark
I absolutely agree. Wolf’s wisdom in the car business is astounding.
If I need a used car, besides knowing friends or family members who might be selling, I use Craigslist. I’ve bought and sold six or seven cars this way.
It’s not perfect, but I’m happy with it.
Craigslist is kinda old fashioned now. Facebook marketplace is much better to sell anything!
Assuming someone wants a Facebook account!
Not me.
:)
Pretty much have to at this point. Craigslist is dead as a door nail. Marketplace has a lot more options but way more dreamers too.
I have Facebook but no friends on it and no pictures or info. Just marketplace only.
Me either. Too many strings attached.
I’ll stick with Craigslist too. Or where I live, our town has a website that has a classified section and that includes an advertising section for selling used cars and trucks. I’ve sold a few used cars on that service…works well.
“The plan was to grow no matter what, while burning investor cash, and to bedazzle investors with that growth, and distract them from the miserable bottom line. They were created to enrich Wall Street banks and insiders.
Isn’t this, by definition and practice, a scam? Gosh, I’m shocked that the market watchdogs didn’t pick up the scent…
There has been a fine line between embarking on and selling speculative innovation, and fraud. Progress turns out to be a huge pile of over-hyped failures with a smaller number of examples that turn out shining and useful and survivable. The legal monitors need to calibrate with their own care, with a hyper-critical public (perhaps rightfully) ready to pounce on any missteps, and their resources are limited like everyone else’s.
The easiest thing in online comments is to condemn anything government does that turns out wrong in hindsight. (Example A: steering the biggest, clumsiest aircraft carrier in the world through the shoals in the fog, as the Fed does. And the Fed is the most obvious slow-moving target for any detractor.) And there are plenty of genuine examples of waste and screwups. The gatekeepers (private also) are very imperfect and sometimes compromised. But try it with NO gatekeepers. Said like a law professor? Yeah, turns out, that’s what I am. Disclaimer: nothing I say here is legal or investment advice, etc.
“Disclaimer: nothing I say here is legal or investment advice, etc.”
Well stated!
Very good response, by the way. Thanks.
A fresh breath of air without the hysteria.
“steering the biggest, clumsiest aircraft carrier in the world through the shoals in the fog, as the Fed does”
But not good to have guys like the captain of Exxon-Valdez steering the carrier.
Most people who had exposure to these stocks don’t even know it. How many ETF’s with Vroom? . . 40, 50? How many mutual funds with the ETF’s with Vroom? 400, 500?
The willies is right. These are the Dr. Jekyll and Mr. Hyde of charts
‘and you can even test drive it, always a good idea when buying used’
Amazing that anyone would consider not doing that.
Other news: ‘The Federal Reserve isn’t ruling out raising interest rates by half of a percent instead of the typical quarter-point move if inflation remains high, Atlanta Fed President Raphael Bostic said in an interview with the Financial Times.’ Jan 30
Since there are only 4 weeks left till March, it will have to fall fast to not ‘remain high’ by the March meeting. It looks like the probability of a .5 bump has to move from near zero to somewhere higher. Let me ask skeptics, this: what odds would you give me if I wanted to bet on a .5 bump? If you gave me 20: 1, I’d for sure bet a $100.
I did consider to and bought a used car sight unseen. Ok, a one-year old car used as a demonstration/ loan/rental car from car brand shop. Legally I was then probably better of then having driven the car before purchase.
The case, if seen and tested I would have bought the car “as seen”. Sight unseen I bought the car as advertised and documented. The seller would then be on the hook for any fault not described in writing and not to be expected on a one-year old vehicle whit that mileage.
1) Last year, on chickened out day, our democracy was spared.
2) NDX collapse will drag JJ down.
3) If JJ will let US debt decay, without a Fed put, stay away from bloody
wars and the radical left ==>
our two Olde presidents will be the most hated, the greatest pair in
US history, including RR, that saved US for future decades…
Wage eating inflation and that all being said…. Someone is still qualifying to buy these cars.
I think unskilled and young workers have been bringing in the bacon the last one or two years. I think where wages have stalled have been in the college educated who have been in the workforce for awhile, the thirty somethings. While I don’t have much evidence, in regards to data this is what I’ve observed:
I have never seen the amount of paper plates flapping in the wind as I have recently. Our next door neighbor who barely qualified for their mortgage, judging by the amount of roommates living there, have four brand new cars. Four, literally 4 brand new vehicles.
My long time friend who has zero skills trade training and zero college education qualified to buy a brand new 4-runner based on six months of Etsy tie-dye income (25k). Six months of income qualified her for a vehicle that costs the same as she’s in annually via Etsy on a trend. Does that seem right? An acquaintance of mine, a hairstylist, just purchased the same 45k+ vehicle. She does well but she’s not making six figures. Her husband is making an average amount (he’s in public service).
Something is off. Something has been very off the last two years in my opinion. Remember the last time gas prices were $5 a gallon in California? You could get a steal of a deal on a gas guzzling 4-runner. What happens if the world starts shifting and the jobs market isn’t as strong?
Massive layoffs and bankruptcies – again.
I loved my Carvana listings. “Here, you can buy this car sight unseen for just $48,000. Joe the ex-repo man will tow it across the Great Plains from Houston, Texas. We promise there’s no water damage. ”
Then the shares are up $20 that same day. All they disrupted was my belief in widespread common sense.
I looked to see what price Carvana would pay for my used Toyota Solara convertable car that only has 60k miles on it. Excellent condition but about 14 years old. They offered $2100. Kelly Blue Book said it was worth $6800-7500 trade-in and $7000 to $9400 private party.
If I look online for this actual car at a dealers. It ranges between $9800 to $12000 for this model but they have 80k to 90k miles.
The same year car with 150k miles is selling for $7500.
Anyone who sells their used car to Carvana would be crazy.
This car is too unusual for their software to digest. Solara Conv is a collectable ok but comp will note yr over miles. Miles can be altered but not yr.
Here in U.K. we have unicorns as well.
Telly is full of adverts for Cazoo and Cinch and somesuch businesses. I read on google share price service that Cazoo market cap is ~5bn. (With a B).
Assuming an average £50k for a motor (expensive), would this suggest that Cazoo has a stock of 100,000 units?
Cazoo sponsors both Aston Villa and Everton of the English Premier League. That’s how I found about about that company.
From 27 January: “Online car marketplaces Cinch and Cazoo, takeaway service Just Eat and social media platform Tik Tok were the biggest new entrants to sports sponsorship in the UK last year.”
“Cazoo and Cinch have followed a welltrodden path in using sport sponsorship to help build brand awareness and credibility.”
“Cazoo and Cinch have followed a welltrodden path in using sport sponsorship to help build brand awareness and credibility.”
This speaks volumes on the human species!
MiTurn,
That quote is from Jon Long. He is the UK & Middle East managing director of Oneside, a ‘consultancy’ & is it is from “Onside’s Top 10 Most Appealing UK Sports Sponsors,” which was published 27 January.
In 1989, I was a bike racer on a team sponsored by Bianchi. Cool deal with a free bike frame to race on for a year – but we had to return the frame at the end of the season.
Bikers had sponsorship deals long before most sports, but deep down in my karma I did not like being logo-clad when racing. So my last two years, ’91 & ’92, I started and ran my own team. Like my grandpa did in his day, our kit was a plain white jersey or skinsuit & black shorts — generic looking as possible.
“Team No Quarter” named after a Led Zeppelin song, and the philosophy of take no prisoners. Yeah, we had an attitude.
Now, when I watch football games (soccer in the USA), the damn sidelines have TV shows going on in the background.
Place a want ad. When yoiu get a response you have all the time in the world to decide. No competing buyers!
Carvana nirvana : Carvana truck pickup your old junk in exchange for a new junk. If u change your mind, your car is gone.
ARKK components : TSLA, ZM, TDOC, ROKU, EXAS, SPOT, PATH, TWLO, PATH…
no Carvana & Vroom.
1) Carvana, Vroom & ARKK are not infested with buybacks and executives
perks.
2) Many old farts have little or negative owners equities. They should have been gone, but buybacks and zero interest rate saved these zombies from death.
3) Carvana and Vroom don’t make money, but they didn’t liquidate themselves to show a positive fake EPS.
4) The next correction might be opportunity to SHOP for a new baby…
Blackstone’s BREIT (Blackstone REIT) now owns 133k homes and are adding more.
They are buying all kinds of stuff. Residential housing, warehouses, apartments, hotels, etc.
Now own 230 Billion in property.
Just search for BREIT property book and look at the pdf.
Blackstone will bite the dust when my IPO comes out, featuring a industry disrupting SPAC which has plans to develop 3D-printed tiny houses.
So many wise comments. Relieved to know I am not alone in believing we have lost our way in business, in ethics, and common sense. I must admit I was close to purchasing a car thru Carvana due to frustration with local dealers. But I did some reading and learned about the car title/registration issues and halted. Dodged the first bullet. Dodged a second bullet when I had a very nice looking good running used Toyota inspected by a mobile car inspector for $255.00. He found clear evidence of a wreck that did not show up on two popular “car check” reports. High prices and wrecked cars being passed off as solid vehicles are the norm now. Be careful, wise, and verify everything. Thank you for a great article. I will sign off as “Almost a Sucker”.
” hundreds of companies” like this that aren’t yet known of specifically, sitting in funds like radioactive waste under your starter home.
If SEC, credit rating agencies, due diligence lawyers, and fund management can’t (or won’t) prevent it, an individual investor with limited time and access can’t do much about that risk in any given fund. Given what people are doing for yield now, the issuers may feel justified, presuming that they feel anything. The auto-automat seems like a gimmick rather than added value. Cars are still pretty personality-driven individualized purchases, like houses, and used cars much more so. To make money scaling up these kind of sales needs a very sharp business plan and plenty of financing without going to the debt markets looking like a mark .
I always benefit from reading your pieces at least twice, thanks, and many of your regular commenters are truly a cut above.lots to learn here.
So much craziness.
Carvana stock was at $98 in December 2019 just before Covid hit with plenty of cars to sell.
Now they are at $145 with no cars to sell?
I should have bought Carvana stock back then and reaped my 50% gains by selling now. Instead, I made 2% in a safe treasury account.
There’s plenty of room for Carvana to fall more.
Very plenty.
My brother sold his BMW coupe a few months ago. He sold it to Carmax, because they offered him the most for it. And he tried these online pickup/delivery places, as well as regular dealerships.
“still have a lot of this ridiculously priced inventory sitting around. And in January, they’re still paying those ridiculous prices at the auction.”
Wolf talks about buy vs sell price but not financing. Seems to me this would be a biggie with a bigger future liability if Powell actually grows a pair and raises rates more than token artificial flavoring.
I have a saying … “Markets always make STUPID MONEY disappear.”
While the original founders and VC backers of these companies probably walked away with many, many millions, those who chose to buy shares of money losing business got what they deserved for wishful “investing”. BIG LOSSES. Stay tuned for more to come, including cryptos, TESLA, Zillow, SPACS and so on
I am a used dealer. People stopped buying in January. I got one call the whole month instead of several a day. Worse than the worst of the last recession. They’ll call if you take a huge loss only now.
Wolf, time for you to write an epic book regarding these giant Ponzi schemes of the 21st century. There must be hundreds of chapters just waiting to be written.
Just wonder what a catchy title might be. Hmmmm…..
Yet, I can still drive my “79 Corvette, ’37 Cord, “97 Expedition, ’99 GMC, and ’02 BMW 525 Touring Wagon; anywhere you clowns can go with your fancy 21st century cars. Who cares about used car prices?
When the EMP event happens, three of my vehicles will barely notice.
My latest stable mate, a 1965 Mustang won’t notice at all.