What happened
Shares of Carvana (CVNA 11.74%) are driving lower once again, dropping 1.7% at 11:33 a.m. ET on Tuesday as the broader market rises. The S&P 500 is up about 1.4% this morning.
While there was no specific news today to push shares lower, Carvana got hammered yesterday, as well, because the used-car market is running into a ditch. The stock has lost about half its value since Thursday when it reported disappointing third-quarter earnings results.
Image source: Getty Images.
So what
The online car retailer is being confronted with a used-car market that's been bouncing from crisis to crisis like bumper cars since the pandemic began. The COVID-19 outbreak caused massive global supply chain snarls that created a shortage of new cars on dealer lots. This, in turn, caused car buyers to seek out used cars to buy. Even as new- and used-car prices soared, it was difficult to find new inventory.
NYSE: CVNA
Key Data Points
Yet now that the shortages are easing, inflation continues to run rampant and interest rates are on the rise. Even though used-car prices are falling, the cost of financing a vehicle purchase is more expensive.
Now what
Carvana has its own problems in that it's selling fewer cars and making a lower profit on each one. Moreover, with the cost of debt going up, the used-car dealer's practice of using debt to expand just got a lot more expensive. As Timothy Green recently noted, Carvana's total long-term debt has more than doubled since the end of last year and now stands at $6.3 billion. Half that amount has interest rates north of 10%.
