Under the Hood: Industry struggles drain $31B in market cap

Auto finance company stocks took a beating in 2020, but they were pummeled even further in 2022. 

Fears of a recession, declining consumer vehicle demand, worse-than-expected financial results and thousands of lender layoffs sent investors scurrying for safer stocks last year. In all, the stock prices for seven auto lenders lost between 24% and 98% of their values, combining for a market capitalization decline of $31 billion, according to an Auto Finance News analysis. By comparison, in the early days of the COVID-19 pandemic, subprime lenders shed a combined $7 billion of market cap. 

Tech darling-turned-dud Carvana (NYSE: CVNA) accounted for two-thirds of the market-cap slump last year, as its stock plunged to $4.74 per share on Dec. 30, 2022, from $239.63 on Jan. 3 of that year. With 84.5 million shares outstanding, Carvana’s market cap plummeted to $400.5 million from $19.8 billion. The auto retailer’s market cap had topped $60 billion at its peak in 2021. 

Carvana has laid off thousands of employees in recent months as it grapples with profitability issues on the heels of its multi-billion-dollar acquisition of Adesa’s U.S. auction business, rising interest rates and falling used-car prices. The company has been slapped with class-action lawsuits and barred from selling vehicles in certain states. 

Similarly, the stocks of online used-car sellers Shift Technologies and Vroom each lost more than 90% of their values last year. Vroom’s stock (Nasdaq: VRM) traded at $1.02 per share at yearend 2022, while Shift’s stock (Nasdaq: SFT) traded at $0.15 per share. Those stock price declines translated to market cap reductions of $1.4 billion and $610.5 million, respectively. 

Aiming for profitability 

Like Carvana, Vroom has implemented companywide staff cuts as it aims for profitability. Since its $300 million acquisition of United Auto Credit Corp. was finalized in February 2022, Vroom has halved its employee roster as it seeks to generate $27 million in savings. Vroom has been working to integrate UACC’s technology stacks and proprietary loan-origination system to enable near-instantaneous loan decisioning and improved digital transactions. 

Shift, too, has been working to integrate its recent purchase of used-vehicle marketplace CarLotz. The efforts — which included cutting 60% of its front-line roles and corporate positions to reduce overhead costs — come as Shift reprioritizes its growth strategy and revamps its business model amid an uptick in online car shopping and macroeconomic pressures.  Yet analysts have a gloomy outlook on Shift’s prospects, reducing revenue expectations and increasing loss-per-share estimates, implying that Shift’s sales will grow at a slower pace than the overall market. 

Meanwhile, Ally Financial’s stock (NYSE: ALLY) lost almost half its value, dropping to $24.45 at yearend 2022 from $46.98. As a result, Ally’s market cap dropped to $7.3 billion from $14.1 billion. Investors have pulled back from Ally’s stock because of rising interest rates and worsening credit conditions in the automotive market. 

A pair of subprime lenders — Nicholas Financial (Nasdaq: NICK) and Consumer Portfolio Services (Nasdaq: CPSS) — accounted for the smallest market-cap reductions last year. Nicholas Financial’s stock fell 45% to $6.30 per share, but because the subprime lender has only 7.3 million shares outstanding, its market-cap implication was more muted, translating to a $38 million decline. CPS’s market-cap reduction totaled $56.2 million, the result of a 24% stock-price decline. CPS’s stock closed out the year at $8.85 per share.  

Though CAC’s stock price lost nearly $200 per share in 2022 — which translated to $2.3 billion in market cap — the company’s stock price (Nasdaq: CACC) continues to hover around $500 per share. CAC’s stock has generally bounced back despite recent regulatory actions. 

Regulatory headwinds 

CAC’s 2022 was bookended by several regulatory settlements. In September 2021, CAC reached a $27.2 million settlement with the Massachusetts Attorney General’s Office related to allegations of unfair practices tied to originations, collections and securitization processes.  

In December 2021, CAC settled a lawsuit with the Mississippi Attorney General’s Office on allegations that it had engaged in unfair and deceptive practices in its financing of optional vehicle service contracts. And early this year, the Consumer Financial Protection Bureau, in conjunction with the New York Attorney General’s Office, sued CAC for allegedly engaging in deceptive and unfair practices. Yet CAC’s stock price is nearly 20 times higher than that of its nearest auto lending rival. 

The equities market bounced back yesterday following the culmination of the Federal Open Market Committee’s January-February meeting that saw another 25-basis point increase in the benchmark rate, in line with expectations. Meta earnings pushed the S&P 500 to its highest level in five months, and the tech-heavy Nasdaq rose 3.4% to its highest level in December on the expectation the Fed would continue with a less– hawkish approach to rate increases this year. 

Auto Finance Summit East, Auto Finance News’ new spring event, kicks off May 10-12 at the JW Marriott Nashville featuring a fireside chat with Peter Muriungi, CEO of Chase Auto. Visit autofinance.live.