Carvana (CVNA) is being proactive as it fights against rising used car prices and increased competition amid a global shortage of semiconductors that continues to hamper the auto industry.
Used vehicle sales totaled 40.9 million units in 2021, according to Cox Automotive, an all-time record that represented 10% year-over-year growth.
This increase was despite prices that soared in 2021, bringing the Manheim Used Vehicle Value Index to a record high of 236.2 in December, implying a 46.6% jump year over year.
Many consumers turned to the used car market last year due to the supply chain issues and lower production of new vehicles. Once in the market, they found numerous online options to purchase their next vehicle.
Carvana operates in a space along with CarMax (KMX) , Sonic Automotive (SAH) and AutoNation (AN) , and those names are just the company's publicly traded competition. Vroom (VRM) even has similar business models to Carvana.
But Carvana has a plan to separate itself from the pack and that plan resembles what e-commerce giant Amazon (AMZN) is doing to diversify its business with a physical presence.
Carvana to Acquire Adesa U.S. With Growth In Mind
Carvana signed a definitive agreement to acquire Adesa's U.S. physical auction business from KAR Global (KAR) for $2.2 billion in cash.
Adesa U.S. is the second largest provider of wholesale vehicle auctions in the U.S. with 56 sites and more than 4,500 employees. In 2021, the company facilitated more than 1 million transactions.
"Together with Carvana’s existing operations, Adesa U.S.’s nationwide infrastructure network and robust, highly profitable business will accelerate Carvana’s progress toward becoming the largest and most profitable automotive retailer,” said Carvana CEO Ernie Garcia in a statement.
“Over time, we will leverage our combined infrastructure and complementary expertise to deliver even better selection, better value, and faster delivery times to our retail customers while simultaneously raising the bar and providing more access and better experiences to our wholesale customers.”
Once the transaction goes through, nearly 80% of the U.S. population will live within 100 miles of either an Adesa U.S. or existing Carvana inspection and reconditioning center. This means they will have access to more vehicles with faster delivery times.
"We look forward to bringing our innovative teams together and combining the power of our physical auction and retail capabilities to better serve buyers, sellers and consumers across the automotive industry," ADESA President John Hammer said.
The Used Car Market Looking Forward
Some of the supply chain issues that hampered the new car market in 2021 have persisted into 2022 leading Cox Automotive to forecast a strong used vehicle market this year, with especially strong momentum carrying through the first half.
Cox forecasts U.S. used-vehicle sales will total 39.3 million for 2022, including 22.1 million retail purchases.
While that is a slight decline from 2022 levels, it is still ahead of 2020 numbers and takes into account the microchip issues that are expected to linger through at least the first half of the year.
Carvana is following Amazon out of cyberspace and into the physical world with its new purchase. It is also hoping that the appetite for used vehicles continues to grow, justifying its $2.2 billion purchase.