Interview Synopsis

Synopsis: Carvana – Adesa Acquisition Analysis

  • Credit
  • Consumer
  • North America

In February, online used car retailer Carvana purchased KAR Global's US vehicle auction business Adesa for USD 2.2bn.* The move has strengthened Carvana’s position against fellow used car retailer CarMax, and potentially “taken out” competitor Vroom, according to a former product manager at Carvana.

Carvana’s Adesa acquisition strikes blow to competitors

In an Interview with Third Bridge Forum, the specialist said the acquisition of one of the US’ biggest car auction houses will help Carvana cover nearly 78% of the US from an “inspection centre-type facility”. These facilities will likely decrease Carvana’s transportation costs because cars can now be reconditioned and stored at Adesa, rather than a Carvana facility. Owning Adesa will also help Carvana secure more inventory – a significant bottleneck in the industry. 

The Adesa acquisition will also have a significant effect on Carvana’s competitors CarMax and Vroom, according to the specialist. Carvana now has more inventory than CarMax, and could limit the dealer’s inventory further by stopping supply from Adesa. Vroom could also be put “out of business” by the move, we were told, given Carvana will look to occupy the same space as the New York-City based company. The specialist said they would not be surprised if Vroom’s haulers and stock were bought by Carvana if the firm went under.

The specialist said the acquisition could also lead to Carvana fulfilling its goal of same-day delivery. However, they said it could cause problems for its future relationship with Manheim – the US’ biggest car auction house. If Carvana decides that Adesa will no longer be an auction house, the specialist thinks this could lead to Manheim “cornering the market” and increasing fees. 

Additionally, the acquisition of Adesa does not address the challenge Carvana faces from OEMs, the specialist said. OEMs continue to sell cars “unabated”, according to the specialist, setting the price for vehicles on what the market will bear and not what someone buying online is willing to pay. If Carvana decides to enter the new car market, the specialist said the strength of OEMs will make such a move more difficult. One way to bypass this issue, the specialist claimed, would be to partner with a struggling OEM, or potentially link up with an EV automaker such as Rivian

The specialist said that with its acquisition of Adesa, Carvana is “on track” to hit triple-digit growth in 2022. However, this could be threatened by the industry-wide truck driver shortage – a bottleneck the specialist warned it is going to have to manage “indefinitely”. But the worst-case scenario for Carvana over the next 12-18 months in the specialist’s opinion is stockholders asking for dividends – something they said would “eat into” Carvana’s pricing. 

To access all the human insights in Third Bridge Forum’s Carvana – Adesa Acquisition Analysis & Demand Outlook Interview, click here to view the full transcript.

* Reuters

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The information used in compiling this document has been obtained by Third Bridge from experts participating in Forum Interviews. Third Bridge does not warrant the accuracy of the information and has not independently verified it. It should not be regarded as a trade recommendation or form the basis of any investment decision.

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