Carvana promised a new way of doing business in the auto industry. Long before the current revamps to virtual retailing, they promised a 7-day test to own option, delivery to your door, and the ability to pick up your vehicle from a state-of-the-art vending machine.

With over $12 billion in market capitalization, operating expenses that continue to outpace gross profit, and an oversupply of inventory, it comes time to ask if the model will work. 

With tremendous downward pricing pressure on used cars due to off-lease vehicle returns and lighter consumer demand, the headwinds continue to grow even more durable as favorable finance terms for new vehicles put pressure on the model. 

Expect lower gross profit per unit from Carvana. The upside--if any--is that Carvana can weather the storm via approximately 15 months of projected cash flow.

Will things be different though--15 months out? Yes, they will, however, by way of improving operations from Carvana’s key competitors. 

Right now, there’s a huge operational opportunity for new-car, franchised dealers to pick up the pieces of the Carvana model that can work for them. It’s clear that the operational advertising and marketing message for Carvana compelled customers to change their habits. And in the new world order, the demand for Virtual Retailing will only grow as consumers expect this of their new car dealers.

Has Carvana joined the ranks of franchise dealers straying away from their previously marketed message that they will buy your car whether you buy one or not? Yes, they have. If you had any doubt that Carvana isn't feeling the same glut of inventory that franchise dealers are during this virus, just compare their marketing message (and past behavior) to their new message:

Sound familiar and different than the "We're your friend with a no-hassle experience?" Well, apparently Carvana is feeling the impact of COVID-19 as well as all other dealers. And they have had to change their strategies as well (even if they have failed to revise their marketing and are continuing to pay for inaccurate Google PPC ads.)

Many new car retailers are already adapting to the change. Cleaner vehicles now reside all over sanitized service drives and dealer lots. Advertising will continue to be more operational. And new cars -- driven by the aforementioned favorable finance terms -- will push people out of used and into new -- especially so with comparable operational experiences.

As such, Carvana’s game-changer, for the worse, will not be a major manufacturer, but rather an infinitesimally small virus that moved the world markets.

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