Carvana originations up 38% YoY

Carvana ’s originations increased in the second quarter, driven by growth in retail sales, as results continued to exceed expectations. The Tempe, Ariz.-based retailer and lender originated $2 billion in loans in Q2, up 10.6 % sequentially and 37.5% year over year , according to Carvana’s July 31 letter to shareholders. Originations were boosted by significant retail sales growth, with total units sold up 10.4% QoQ and 32.6% YoY at 101,440 units, according to the letter. Though affordability challenges persist, Carvana’s growth is partly due to focusing on what customers want, Chief Executive Ernie Garcia said during the retailer’s earnings call on July 31. “We're focused on continuing to buy the cars that our customers are demanding on our site, getting those up, getting those reconditioned, delivering them to customers and giving them great experiences,” he said. On the operational side, Carvana will look to increase production to offer its customers a wider selection of vehicles, Mark Jenkins , chief financial officer, said during the call. “The teams met their production targets in the quarter, but we remain below our target available website inventory due to continued strong demand,” he said. “In the near term, we will continue to increase production across the country.” Carvana reported a second consecutive quarter of stronger-than-expected earnings. The results are a reversal from 2023 , when the retailer dealt with deeply distressed debt levels. . In March 2023, Carvana announced that it would exchange up to $1 billion of bond principal at lower prices as it worked to restructure its debt load. Total liquidity resources came in at $4.1 billion, up 24.2% sequentially and 13.9% YoY, according to the letter. F&I profit declines Carvana’s other gross profit per unit (GPU), which includes finance and insurance profits, fell 8.5% YoY but grew 10.4% sequentially, landing at $2,750. Retail GPU was up 28.3% YoY and 11.1% sequentially at $3,421. The YoY jump in retail GPU “was primarily driven by higher spreads between wholesale and retail market prices, lower reconditioning and inbound transport costs, and lower average days to sale, partially offset by higher retail depreciation rates and a lower retail inventory allowance adjustment,” Carvana’s letter said. The decline in other GPU on a YoY basis “was primarily driven by selling a greater volume of loans relative to originations in Q2 2023 compared to Q2 2024, partially offset by the continued impact of credit scoring improvements, pricing optimizations , and credit tightening begun in Q4 2023,” according to the letter. Finance receivables held for sale decreased to $758 million, down 31.1% YoY and 12.5% sequentially. Carvana has issued four asset-backed securities (ABS) deals this year, two transactions backed by subprime loans and two backed by prime loans, according to Finsight , which monitors securities. Carvana’s first transaction in February was backed by $445 million in subprime loans, and its most recent transaction was in June, backed by $683 million in subprime loans, totaling $1.13 billion, according to Finsight. Meanwhile, Carvana’s two securitizations this year backed by prime auto loans tallied $965 million, bringing the retailers total ABS transactions for the year to $2.1 billion. Shares of Carvana [NYSE: CVNA] were trading at $146.62 at market close today, up 10.05% from market open. . The retailer has a market capitalization of $17.1 billion. Auto Finance Summit, the premier industry event for auto lending and leasing, returns Oct. 7-9 at Wynn Las Vegas. . To learn more about the 2024 event and register, visit www. .AutoFinanceSummit.com.

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