What happened
The smoldering wreckage that is Carvana (CVNA +2.86%) stock continues to burn up the remaining value of investors as shares careen 15.9% lower as of 11:52 a.m. ET on Monday.
While there was no news specific to the online used car dealer that would cause it to crash, NBC News reports that vehicle repossessions are soaring in a worrying sign for the economy.
Image source: Getty Images.
So what
Consumers can't afford their car loans anymore, and NBC, citing data from ratings agency Fitch Ratings, says auto loan defaults are exceeding pre-pandemic levels. Because people were flush with cash from the stimulus checks flooding their mailboxes, they went out and bought cars in such numbers that it created a vehicle shortage, which pushed prices to record highs.
Now, with inflation, high energy costs, and rising interest rates, these people can no longer afford their monthly payments. It will only get worse if a recession strikes in 2023 -- as many analysts and economists are predicting.
That doesn't bode well for Carvana, which will likely find it even more difficult to sell more cars, even if its inventory problems ease.
NYSE: CVNA
Key Data Points
Now what
According to TheFly.com, Wedbush analyst Seth Basham finds it difficult to see how Carvana can survive its liquidity problems. In a research note to clients, Basham said the used car dealer's acquisition of auto auction house Adesa was an "ill-timed" one and will likely lead to Carvana's liquidity resources drying up by 2024.
