Carvana, the fast-growing used-car seller based in Tempe, announced Tuesday its plans to lay off 2,500 employees – more than 10% of its workforce – as losses mount.
The company, which operates a network of high-profile vehicle “vending machines” including one at Loop 202 and Scottsdale Road, said the move was designed to “better align staffing and expense levels with sales volumes.”
Carvana reported a $506 million loss in its first quarter ending March 31, well above red ink of $82 million during the same stretch of 2021, despite a 56% jump in revenue to $3.5 billion and a 14% increase in vehicles sold.
The company has never logged an annual profit over its 10 years of existence, preferring instead to plow cash flow into expansion.
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Impact on Arizona jobs uncertain
The company didn’t disclose how many of the 2,500 affected employees work in Arizona or at its headquarters on the southern edge of Tempe Town Lake. Carvana reported around 21,000 full- and part-time employees at the end of 2021.
“All impacted team members will have the opportunity to receive four weeks of pay plus an additional week for every year they have been with Carvana,” the company said in a statement. “Impacted team members will also have the opportunity to receive extended healthcare coverage, pay equal to early vesting of certain previously granted equity awards, recruiting and résumé support and continuing participation in certain other company programs.”
In addition, Carvana’s executives pledged to forego their salaries for the rest of the year to “help contribute to the severance pay for departing team members.”
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Sergio Silva said he was laid off Tuesday morning from his position as a customer advocate, in which he helped customers deal with issues such as registration delays or vehicle imperfections.
“We were completely blindsided,” said Silva, a 37-year-old Maryvale resident who had worked at the Tempe complex for six months. The company made the announcement during a Zoom meeting Tuesday after notifying employees the day before not to come into the office. “People were just freaking out,” he said.
Still, Silva said he had a premonition that something might be amiss, as Carvana continued to hire aggressively, at least into April, even as telephone calls from customers were slowing.
Auto business in unusual moment
In a letter to shareholders, Ernie Garcia, founder and CEO of Carvana, said the poor first-quarter results reflect a combination of high used-vehicle prices, rising interest rates, coronavirus fallout and “other macro factors” that affected Carvana and the used-vehicle industry as a whole.
Carvana stock closed Tuesday at $36.68 a share, down from a 52-week high near $377.
Still, Garcia said the company views the macroeconomic headwinds as transitory.
“Recent macroeconomic factors have pushed automotive retail into recession,” said a Carvana spokesperson in a prepared statement. “While Carvana is still growing, our growth is slower than what we originally prepared for in 2022, and we made the difficult decision to reduce the size of certain operations teams to better align with the current needs of the business. “
Earlier this year, Carvana announced plans to buy ADESA U.S., a vehicle-auction business, for $2.2 billion. The company has announced no changes to that plan.
Lower sales than expected
In a letter to shareholders, Carvana’s management team also cited higher vehicle-reconditioning costs and disruptions to its logistics network for the poor quarterly results.
“We generally prepare for sales volume six to 12 months in advance, meaning we built capacity in most of our business functions for significantly more volume than we fulfilled in Q1,” the company said. “With our costs relatively fixed in the short term, the lower retail unit volume led to higher cost of goods sold per unit.”
The company also said it believes the used-vehicle market is stable and will average sales of 40 million or more units annually. “In the long-term, our expectations are unchanged, and our enthusiasm is as high as ever,” the company added.
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