Listen: E-commerce retailers focus on cost reduction in Q1

Automotive retailers Shift and Vroom focused on profitability rather than growth in the first quarter following rising interest rates and declining investor sentiment. Vroom in Q1 reduced its workforce by 270 positions as it prioritized cost reduction. The company’s cuts followed Carvana ’s move to lay off 2,500 employees ; Shift, meanwhile reduced its team by 10. The job cuts are representative of challenges in the e-commerce space that have surfaced as investor interest dropped in Q1. In addition to employee layoffs, Shift put its expansion plans on hold as the retailer’s planned move into Las Vegas ran into unexpected regulatory speedbumps. Although the e-commerce lenders are being more mindful of their growth plans, both Shift and Vroom moved ahead with their acquisition plans in Q1. Shift’s acquisition of fintech Fair Technologies remains on track for a May closing and Vroom moved forward with its formation of its own captive finance arm following the February acquisition of United Auto Credit Corporation . In this episode of the Weekly Wrap, Auto Finance News Deputy Editor Amanda Harris and Associate Editor Whitney McDonald discuss last week’s top stories, and what to expect in the week ahead. Subscribe to The Roadmap Podcast on iTunes , Spotify , or download the episode. Video Transcript: Editor’s note: This transcript has been generated by software and is being presented as is. Some transcription errors may remain . Amanda Harris 00:10 Hello everyone and welcome to the roadmap from auto finance news since 1996, the nation's leading newsletter automotive lending and leasing. It's Monday, May 16. I'm Amanda Harris joined by Whitney McDonnell. And this is our weekly wrap on what happened in auto finance for the week ending May 13 2022. Evie startups that merged with special purpose acquisition companies to go public in the last two years made some concerning disclosures earlier this month, canoe Lordstown motors and Pfizer all admitted that their capital may be running low, and whether they have a year or two left in the reserve they will need cash sooner rather than later. rivian To sell stocks hit an all time low last week. But in the company's earnings leader said that despite the losses, the company still has $17 billion in cash and has more than enough cash to launch this next model in 2025. Auto credit availability also improved again for the second consecutive month in April, contributing to a 17% month over month improvement in Cox automotive has Dealertrack credit availability index rising it to one Oh 6.3 which is mainly attributed to loosen credit standards compared with April 2021. increased access to credit has been a trend over the past year following tightened credit standards amid the pandemic. CoCs also found that April's Consumer Price Index inched down to 8.3% from 8.5% in March, as inflation decelerated. However, inflated prices on food gas and vehicles remain elevated at a 40 year high. On May 5, GM Financial also launched Cadillac financial services available through all Cadillac dealers. The new captive aims to compete with captives like BMW financial services, and Mercedes Benz financial services. We have the stories up on our site you can read those to get more details. Also this month startup Evie subscription service autonomy launched a partnership with workplace perks provider next jumps, person perks at Works program to drive growth on his platform. Perks at work members, which include employees of fortune 1000 companies will receive a $500 incentive from autonomy when they sign on to an Eevee subscription. The partnership is an Infinity Marketing Strategy and will allow autonomy to save advertising costs while growing its customer base. Turning to earnings news, which continued this week and last week shift and Varun reported their first quarter results and posted similar findings as per Vana. With job cuts and hold to their growth when you cover shifts earnings. What were the takeaways in q1?Whitney McDonald 02:51 Yeah, so as you said shift posted their q1 earnings last week. In the first quarter, they decided to focus on their business strategy in markets where they already exist, rather than moving into new states or cities at this time, so honing in where well where they already are. This allowed the retailers to save money at a time that investors have kind of strayed away from the E commerce new tech companies as we've seen, as we saw last week with Carvanha to so in saving costs, they also made the decision to cut some employees from their team. And that accounted for around 10% of their team that they cut. And that left them with just over 1300 employees. So as I said that follows Carvanha has decision to cut employees and they cut 2500 employees that was announced early last week. So although that they're not focusing right now on expanding, other retailer did see a 51% year over year increase in sales volume. And that was a 400 or 4% increase from q4 2021. So that was driven mostly by growth in its west coast and target. Texas markets where they already were shift also worked on providing more affordable vehicles. So they were looking at older used cars, kind of that eight plus year range. And that was just to combat a high vehicle values, which they're still high even when they're older too. So I'm doing what they can in that. In that area. Other retailers. f&i profits also increased. They climbed 41% from the state same period last year, as they invested heavily in their ancillary product team. So they put a new f&i team in place and trained them so that's where that growth came. They also remain on track for their acquisition of fair technologies, which is planned to close later this month. So although they have changed their business model to focus on those areas where they already are, that acquisition does remain on track. So that's what shift was up to, for the first quarter.Amanda Harris 05:04 Great, yeah, we've we've kind of seen and then Reese really just recent weeks any, like tech based growth based company really pulling back on this strategy just kind of grow, grow grow that they've kind of had in place. And so they really were founded room shift Carvana. Even like Carmax, all of them had that similar kind of mentality. And they're really having a pullback. Now with rising interest rates and investor sentiment kind of declining for those type of no high growth, low profitability companies, just as the overall capital markets is kind of struggling right now, if you've looked at stocks, anytime recently, you can see that just everything is down, the Dow was down as well. So it makes sense that they're gonna have to kind of reevaluate things and unfortunately, cut some positions. So room. Similar story, they did also announce a reduction in their staff, they cut about 270 positions about 14% of their workforce. They also named a new chief executive recently as well. So they have a new leader who will take over the company. Now of course for him, if you remember recently acquired subprime lender United Auto credit to serve as their captive finance arm. So they are actually now reporting that side of their business. So uacc originated $180 million in auto loans to dealership customers in the first quarter. So that's kind of our first look at how USC is performing. Following the acquisition by room. They do also have a $350 million unused warehouse credit fund facility capability capacity as of March 31. So that gives them a lot of liquidity as well, going forward. So each quarter now we should start seeing how that lenders performing as firms captus that will be something we're following pretty closely. Yep. And then, like I said, room parvana. All very similar story right now decline in investors, investor sentiment, rising interest rates. And we know that consumer demand is kind of dipping some for vehicles, too. So that's kind of impacting these kind of ecommerce based retailers, especially as people go back to dealerships we know they had a lot of growth, because of the pandemic, people couldn't go to dealerships that are researching more online, buying more online, and that really helped these companies during that timeframe. But it seems to be that that is no longer propping them up quite as much people are going back out there to having dealerships, myself included, working on my car. So I guess we'll kind of see how this plays out. The feeling, though, is that they aren't going away. No one's talking about any admin disappearing, they're just kind of have to reevaluate things. And their business model going forward. So we might see them stall grow for a little bit and focus on like you said, the areas that they already are, and expanding those, so we'll see what happens to be pretty interesting. So yeah, that will be about does it for our episode today. Thanks for joining us on the roadmap and follow us on Twitter and LinkedIn. And we'll see you online auto finance news.net and here next time The 23rd annual Big Wheels Auto Finance Data 2022 report is now available, providing exclusive statistics on the auto lending and leasing industry and a ranking of the top 200 auto financiers in the nation. Order your report .

Listen: E-commerce retailers focus on cost reduction in Q1

Carvana, Shift and Vroom announced job cuts last week

Bonds backed by car loans are selling at fastest pace in years

Q1 brings origination growth, mixed credit results for banks, captives

Related Posts

GM Financial President: Used EVs ‘going to gain traction’

Affinity FCU leans into auto refinance as competition increases

‘Synthetic fraud is rampant’: Agentic AI, social media empowers auto scams

Beige Book: Higher car, gas prices contribute to mixed sales performance

Q1 brings origination growth, mixed credit results for banks, captives

Stay Informed with Our Newsletters

The Roadmap Podcast

SPONSORED

Why credit unions give dealers an edge in today’s auto market

Driving better decision-making across auto finance operations with SAS

Auto finance’s first line of defense: Raising the standard in integrated software partnerships and data strategy

Retrieve your password