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Used-car demand has 'been strengthened' by COVID-19: Carvana CEO

Yahoo Finance’s Brian Sozzi, Myles Udland, and Julie Hyman speak with Carvana CEO Ernie Garcia about how the used-car industry is faring amid COVID-19.

Video Transcript

JULIE HYMAN: It's gone even beyond conventional wisdom now that the pandemic has accelerated all kinds of trends over the past year. One of those trends has been online car buying, and shares of Carvana reflect that. They are up more than 200% over the past year. The CEO, Ernie Garcia, is joining us right now to talk about what's going on. He's also the founder of Carvana. Ernie, thank you for being here.

You guys sold 64,000 cars in the third quarter. The online penetration's still a small fraction of the overall used car market, but what do you think the penetration could be? What are your projections for how important a part of the market this could end up being?

ERNIE GARCIA: We think it could be really important. We think by offering customers an online experience, we can save them around $1,500, give or take, on every car they buy. We can give them a bigger selection, a better experience, and a seven-day return policy. And so we think that's a pretty exciting offering. Our goals are to sell two million-plus cars, which would represent about 5% of the market, 5%-plus of the market. So we think it's a huge opportunity, and we think it's been accelerated by everything that's happened in the last year.

BRIAN SOZZI: Ernie, one of my sources sent me over some-- they track your traffic data, and what they saw in the fourth quarter was triple-digit growth in excess of 100%. And when I saw that, my first thought, wow, Ernie is finally getting more inventory on the platform to meet the crush of demand. You and I have been talking about, really, for the past 12 months, are you getting the inventory you need right now to keep that sales growth going like the Street has expected?

ERNIE GARCIA: Sure. Well, so-- I mean, we haven't reported our earnings yet. So I'm going to stay away from specific numbers like the ones that you're pointing to, but I think the underlying trend is clearly correct. There is a lot of demand for our offering. Through 2019, pre-pandemic, we grew by triple digits every single year of our company's life. And then kind of dealing with the operational strains of the pandemic pulled us back in 2020, but the underlying demand for a lot of growth is there. And it's, if anything, been strengthened by all this. So as you said, you know, we've been working as hard as we can to get in front of all that. We've been ramping up inspection centers very quickly, ramping up hiring and inspection centers, and I think the team's doing an incredible job catching up.

MYLES UDLAND: You know, Ernie, one of the really interesting dynamics economically in this pandemic has been the way that folks at the higher end of the income scale have really not been affected much, and I'm curious how that's trickled down to your mix, if at all. Are you selling more luxury cars, more larger cars, SUVs, expensive vehicles? And what has that been like through the year as, again, the economic fallout has kind of continued here?

ERNIE GARCIA: So I think there have been some mix shifts, and they're probably weekly in the directions that you're pointing, but I think those have been offset by a little more conservatism on the part of buyers as well in general, especially earlier on in the pandemic. So I think there's a number of effects going on there.

I also think that the entire economy is a little bit different in a world where people aren't spending as much money, or really any money, on travel and far less money and going out to restaurants. So I do think that many consumers have more disposable income available for big-ticket purchases. And so I don't know that it's impacted our industry as much as it may have impacted some other industries.

BRIAN SOZZI: How do you imagine-- and it's a topic we've been talking about for some time-- the rise in electric vehicles? GM-- big electric vehicle push. Ford-- big push. Certainly Tesla is out there as well. How is the rise in electric cars over the next few years, how is that going to impact Carvana?

ERNIE GARCIA: You know, I think the impact is really not going to be that profound. We're set up very well to handle it. We sell a lot of electric cars today. We've got a lot of customers that come to our site that are looking for electric cars. And to us, we're kind of fixing the car, putting in $1,000 of parts and labor into it to certify it to Carvana's standards, and we're delivering it to the customer's home, and that doesn't really matter if it's a combustion engine or an electric car. Not a ton changes from our perspective.

JULIE HYMAN: All right. Ernie Garcia, thank you so much. Actually, Ernie, sneaking one more in-- If there is indeed a new stimulus package with $2,000 checks, how much of a boost does that give to you guys? Do you think people will use it for cars?

ERNIE GARCIA: I think undoubtedly, especially with the first stimulus package, there was a very big response in terms of increasing customer demand. I think with the most recent stimulus package, there seems to clearly be a response as well. It's a little hard for us to separate that out perfectly, because we're just seeing so much demand in general. But there's no doubt that when consumers get a big check in their pocket, they look to buy expensive items, and I think the auto industry is generally a beneficiary of that.

JULIE HYMAN: Yes, indeed. All right. Ernie Garcia, thank you so much for being with us. Carvana CEO and founder.