What happened

Shares of Carvana (CVNA 2.86%) 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.

Smiling couple holding car keys.

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.

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%.