Online car dealership Carvana will lay off 12% of its workforce after reaching an agreement to expand its operations, a Wall Street Journal (WSJ) report announced on Tuesday (May 10).
According to Ernie Garcia III, CEO, the company has exceeded its growth strategy. It will cost about 2,500 layoffs.
“It’s always been the right decision to start building growth long before we expect it to happen,” Garcia wrote in an email to employees. “This strategy has worked for us every year until this one.”
The WSJ report notes macroeconomic factors that have hit the car retail market, including inflation, rising interest rates and supply chain lockdowns. Hence the need to adjust headcount to balance sales volume and headcount, a Carvana spokesperson said.
WSJ writes that Carvana’s sales fell for the first time ever in the first quarter as the company reported a net loss of $260 million as shares fell 59% since the company reported results in late April.
Carvana’s business model offers an almost entirely online buying and selling experience and has seen a glut of business during the pandemic due to a lack of people shopping at physical dealers.
The company achieved the expansion through low-cost borrowing. It leveraged its balance sheet to fund a slow expansion, with much of its gross profit going through accounting gains on the sale of auto loans it generated before selling them to investors. This made him unique from many peers.
The company’s slowdown could be compared to other pandemic successes, including fitness company Peloton and streaming giant Netflix – both of which got more subscribers when everyone was told to stay home.
Carvana’s decline came in what PYMNTS said should not have come as a surprise, with a “perfect storm” of internal production delays and external macroeconomic factors making things difficult.
Read more: Carvana collapses in ‘difficult, difficult and deteriorating’ environment
The company still had a good year-over-year comparison at the end of April, but its drop from a peak in the fourth quarter would likely indicate problems in the automotive market, PYMNTS wrote.