What happened
Shares of Carvana (CVNA +0.61%) continue their skid into the ditch Monday morning with the stock falling 6.3% as of 10:57 a.m. ET.
While there was no company-specific news today to account for the sell-off, fears for the online used car dealer continue to mount. Bloomberg reported last week Carvana's lenders were banding together to work together in the event the dealer goes belly-up. Some 70% of the creditors, representing $4 billion in loans, have agreed to the strategy.
Image source: Getty Images.
So what
The used car bubble is bursting. After a year or so of ever rising prices, the market is turning as prices fall and inventory shortages ease. While that ought to signal a bullish environment after the auto industry was unable to match demand, the Federal Reserve has been ratcheting up interest rates at an unprecedented level, making borrowing for a car significantly more expensive.
It also makes Carvana's own debt load heavier. The used car dealer has $6.6 billion worth of long-term debt on its balance sheet, about half of which was issued earlier this year to finance its ill-timed acquisition of auction house ADESA.
Carvana has $316 million in unrestricted cash available. Jefferies analyst John Colantuoni believes Carvana will run out of money by the first quarter of 2023.
NYSE: CVNA
Key Data Points
Now what
Sales are falling for Carvana, gross margins are plunging, and its inventory of available vehicles is contracting. That's a problem because fewer cars means potential buyers will have a more difficult time matching up with one to purchase. It seems like a situation that will continue to feed on itself until Carvana crashes and burns in bankruptcy.
