Carvana Steers Clear of Forming Captive, Opts to Offload Finance Risk

  • William Hoffman
  • June 19, 2017

Online car dealership Carvana has no immediate plans to form a captive like its main competitor CarMax, but it does hope to improve its existing third-party finance program, Chief Executive Ernie Garcia said during the company’s first-quarter earnings call last week.

“I think, somewhere we think we can do better is in financing,” Garcia said. “While [CarMax] has a captive finance company, and that enables them to monetize finance receivables in a more complete way on those receivables that they keep, we built a pretty unique finance platform.”

Carvana signaled that it is unwilling to take on the additional risk involved in financing loans, opting instead to provide customers access to credit. “[That allows us] to monetize finance originations across the entire credit spectrum — not just to the top end of the credit spectrum — while passing that credit risk on to third parties,” Garcia said.

Ally Financial Inc. agreed in early January to fund $600 million worth of contracts for the online retailer, and Carvana added Associated Credit Union and LGE Community Credit Union to its 11 credit union partners in December 2016.

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