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The good experience you had early on and the bad state of the company now are closely linked. The story is always the same with this type of company: take a ma

The good experience you had early on and the bad state of the company now are closely linked. The story is always the same with this type of company: take a mature industry that is profitable on a unit basis because it’s boring and unpleasant, then build a narrative around some strategy to make it exciting (giant vending machines!) and get buy-in to spend huge amounts of money in pursuit of the narrative but eventually discover the only way to be profitable is to do what the mature industry players already discovered — but now you’ve got so much debt to service you have to cut even more corners and somehow manage to spend billions on becoming a worse version of what already existed and whatever goodwill you earned is burned. There’s lots of room for businesses to improve on the boring legacy industries with low margins — like car buying and selling — but it requires careful iteration, it requires taking the established understanding and then building on it. Subsidising the cost of good-but-unprofitable service using investment dollars (Carvana was losing thousands per sale pre-pandemic) doesn’t build a sustainable business unless it’s part of a strategy.

avalys 4y ago
Yeah, exactly. "I loved Carvana because I bought a great car from them at a better price than the legacy players!" and "I loved Carvana because they bought my used car at a really good price!" Guess what? Buying cars for too much money and selling them for too little money means they go out of business.
- maria2 4y ago
  > "I loved Carvana because I bought a great car from them at a better price than the legacy players!" That's literally the opposite of what the GP said: > The buying experience was simply excellent for me, and I couldn't be happier with the car I bought. I figured I probably could have gotten a comparable deal slightly cheaper somewhere else, but I would have wasted a ton of time I mean this politely, but did you really read what you were replying to?
  - bluedino 4y ago
    I think he was quoting the typical Carvana customer, not the parent poster
  - dragonwriter 4y ago
    > That's literally the opposite of what the GP said: Its not, though. Its true the upthread poster focussed on “buying experience” not “price”, but the adverse parts of the typical used car buying experience are a highly evolved optimization for drawing people in with advertised prices while optimizing actual prices without driving buyers off. Carvana’s better buying experience is neither “opposite of” nor even orthogonal to their failure to optimize price, its a direct consequence of them deciding they didn’t need to.
- 015a 4y ago
  That's... not what anyone is saying. I bought an Audi from Carvana. It was more expensive than anyone else (~2-4% more). The price they paid for my trade-in wasn't as good as some competitors. I did not interact, in any way, with one of their vending machines. I'd still do it again. It was a totally hands off experience; I will pay extra to not be talked to by someone. The checkout wizard was nearly as easy as buying something on Amazon. Which car? Enter your bank account number and social security. Agree to this loan rate. Sign over power of attorney so they can get your first year of registration and plates taken care of. They drive up to my apartment building; drop it off; "take it for a spin, I'll wait"; come back 30 minutes later; looks awesome; done. I've taken that car to the local Audi dealer for service. They upsell you on everything. They pressure you. "Hey, while you're waiting, why not take this new 2022 A4 for a spin, no problem man my treat." "Yeah your car is in great shape; we could give you $15,000 for it right now, that'd take care of your down payment on this new one, its nice isn't it, don't worry about the monthly we can discuss that later" Just stop talking to me. I will pay so much more to not be talked to (and, really, compared to most dealers nowadays; its hard to say if Carvana is even "more expensive"). I feel extremely, EXTREMELY, confident in saying that this attitude has sold Teslas to three people in my bubble. You can start the process to buy a Tesla with Apple Pay. Seriously. Their new delivery process involves ZERO people; you drive to the store, the app tells you the ID of the car which corresponds to a piece of paper hanging in the windshield, you walk around the parking lot looking for it, if there are issues then people get involved; otherwise you drive away. That's it. I am buying a Tesla right now, even though I rather like the Mach E, because they make it so dangerously easy, and I have no clue how to buy a Ford. What's their delivery estimation? Is the price quoted on the site what I'll actually pay? Do I call someone? God, I gotta actually talk to someone? I gotta drive to the dealer? In person? Screw that, Tesla makes it easier, they get my $60,000. Carvana made mistakes. But their model wasn't some VC abbaration like so many SV companies. They actually struck on something new, in an industry that needed that innovation, and that discovery has since (or maybe, in parallel) been applied by other companies in the industry. They screwed up, but I'll miss them.
  - epa 4y ago
    Oh no, talking to someone
- dimmke 4y ago
  I loved Carvana because I bought a car from them for about the same price I’d pay at a dealership but it was all online and I didn’t have to feel like I was getting swindled at any point. The experience of buying a car at a dealership is a fucking nightmare. It’s awful. It’s the worst customer experience you can have in the United States. There’s been some serious issues with the used car market fluctuating over COVID but it’s very reductive to now say “oh they were bad the whole time just another unprofitable unicorn”
  - jrnichols 4y ago
    I'm old enough to remember iMotors and how it too made the online car buying experience decent. Carvana has done the same thing, 20 years later. Car dealerships, for the most part, have not evolved at all or even tried. The experience is still a huge pain in the ass, and they know it.
jacquesm 4y ago
> Subsidising the cost of good-but-unprofitable service using investment dollars (Carvana was losing thousands per sale pre-pandemic) doesn’t build a sustainable business unless it’s part of a strategy. Unfortunately that summarizes a fairly large fraction of the presentations aimed at VCs.
gmd63 4y ago
I think you can generalize even further and say that this story applies to most companies flooded with investor capital. Take Uber for example. The VC subsidies convinced a significant portion of people to upend their lifestyles and attempt to make money in an ecosystem where prices were artificially juiced by VC money. It's ironic that free market types are completely for subsidies when the private industry does it, although public and private subsidies both have issues. At least government subsidies have a benevolent intent usually. VC subsidies are usually about hiding the true market value of a product to attract customers who otherwise wouldn't have shown interest until it's time to crank the money milker.
- gmd63 4y ago
  There really should be a law against this. It's jarring to the economy to confuse people with artificial prices when your sole goal is to snap a customer base into some long term reliability on a platform or product that isn't necessarily any different after the subsidy runs dry and it needs to become self-sustainable.
  - hgdfhgdfhgf 4y ago
    Why should there be a law? People benefited with cheaper taxis and VCs lost their money
    - ojbyrne 4y ago
      VCs lost other people’s money. I think that bill has yet to come due.
    - gmd63 4y ago
      when you skew the incentives in the economy such that people focus on developing skills that are based on artificially juiced things that aren't actually that valuable (see Axie Infinity) it's bad for folks' livelihoods long term
- dehrmann 4y ago
  > The VC subsidies convinced a significant portion of people to upend their lifestyles and attempt to make money in an ecosystem where prices were artificially juiced by VC money. People didn't seriously upend their lives to drive for Uber until they retire. The people who were hurt by Uber were people who bought taxi medallions and suddenly found themselves competing with unlicensed taxis. But on that point, as much as it sucks for them, their monopoly status meant the service was overpriced and didn't innovate. Uber might have been underpriced when it was subsidized, but it's still cheaper than taxis and makes rid hailing easier. Don't forget that even after the reality of things set in, Uber is still a $50B company. There's a real business there.
hn_throwaway_99 4y ago
I'm not really sure I agree with your argument. It seems quite clear that what has really contributed to Carvana tanking over the past year was they vastly mispriced their product. What happened to Carvana is essentially exactly what happened to other companies that misjudged the effect of the pandemic, e.g. Zillow with their bad experiment with house flipping (paid too much for houses) and Bright Health (vastly underpriced their insurance due to impact of COVID). But I want to emphasize, I would have gone to Carvana even if it were considerably more. The trusted, online-only buying experience is just something I'm totally willing to pay for, especially given how extremely awful the normal used-car buying experience is.
- phphphphp 4y ago
  Depending on exactly when you bought your car from Carvana, Carvana likely lost between $2,000 and $5,000 on your purchase. Carvana has never made money on selling cars. If you're willing to pay $5,000 more for a used car because you'd like good service, then there are a great deal of options available to you. The simplest option is to go to a reputable dealership that focuses on customer service (which have existed and continue to exist!) or you could find a legacy player that is moving into the space. Elsewhere in this thread, someone mentioned that they recently had a great experience with CarMax. At its core, my argument is that there is a sweet spot in which you can get great service from these "boring industry + technology + money" companies but that's because they're actively pursuing good customer service at any cost with no consideration for making money. As soon as the company (or its investors) realise this behaviour is unsustainable, they forget all about their narrative and go all in on making money -- which is when the quality of the service slips. The amount you pay to Carvana (more or less than you'd pay elsewhere) doesn't have a relationship to the quality of service you will receive, because it's not a "normal" business. There can be positive consumer outcomes from companies that approach business like Carvana: in the short term, customers get investor-subsidised products, and in the long term, other players in the industry get to learn from consumer reception (e.g: CarMax probably learned about demand for higher quality service from what Carvana demonstrated early on) but Carvana specifically is doomed to failure because it isn't a sustainable company that made a bad decision during the pandemic... it's been unsustainable its entire life.
rhaway84773 4y ago
You see this with airlines. People keep complaining about how flying has become so much more unpleasant. But other than a small minority, the customers almost always pick lower prices over any improvements in service. And the same is probably true for buying a used car. Folks may talk about how the experience is poor, but at the end of the day price is what will drive their purchase. So whoever gives the lowest price, which often translates to a worse experience, will succeed in the marketplace.
tristor 4y ago
I think you could generalize much further and just say this is what happens to companies that don’t understand the basic principle of CAC to LTV ratio. If it’s negative, when the funny money stops, it’s gonna be a rough ride.
BeFlatXIII 4y ago
I wonder what we can do as consumers to convince investors to make stupid decisions to subsidize unprofitable industries so we can enjoy cheap prices.
friendly_deer 4y ago
I was pattern matching Carvana to a company called Sidecar[0] this summer when I heard my friend say he bought a car for something like $5k less than any dealership in town was offering it for. Sidecar was the "3rd company" that did ride-sharing in my city in 2014-2015, after Lyft and Uber. Somehow they were selling rides from any point in the city to any other point in the city for $1. I suppose it was getting subsidized by VC money; and I took probably $500 worth of rides for a year or so until it shut down. [0] https://en.wikipedia.org/wiki/Sidecar_(company) https://en.wikipedia.org/wiki/Sidecar_(company)

avalys 4y ago

Yeah, exactly. "I loved Carvana because I bought a great car from them at a better price than the legacy players!" and "I loved Carvana because they bought my used car at a really good price!" Guess what? Buying cars for too much money and selling them for too little money means they go out of business.

maria2 4y ago
> "I loved Carvana because I bought a great car from them at a better price than the legacy players!" That's literally the opposite of what the GP said: > The buying experience was simply excellent for me, and I couldn't be happier with the car I bought. I figured I probably could have gotten a comparable deal slightly cheaper somewhere else, but I would have wasted a ton of time I mean this politely, but did you really read what you were replying to?
- bluedino 4y ago
  I think he was quoting the typical Carvana customer, not the parent poster
- dragonwriter 4y ago
  > That's literally the opposite of what the GP said: Its not, though. Its true the upthread poster focussed on “buying experience” not “price”, but the adverse parts of the typical used car buying experience are a highly evolved optimization for drawing people in with advertised prices while optimizing actual prices without driving buyers off. Carvana’s better buying experience is neither “opposite of” nor even orthogonal to their failure to optimize price, its a direct consequence of them deciding they didn’t need to.
015a 4y ago
That's... not what anyone is saying. I bought an Audi from Carvana. It was more expensive than anyone else (~2-4% more). The price they paid for my trade-in wasn't as good as some competitors. I did not interact, in any way, with one of their vending machines. I'd still do it again. It was a totally hands off experience; I will pay extra to not be talked to by someone. The checkout wizard was nearly as easy as buying something on Amazon. Which car? Enter your bank account number and social security. Agree to this loan rate. Sign over power of attorney so they can get your first year of registration and plates taken care of. They drive up to my apartment building; drop it off; "take it for a spin, I'll wait"; come back 30 minutes later; looks awesome; done. I've taken that car to the local Audi dealer for service. They upsell you on everything. They pressure you. "Hey, while you're waiting, why not take this new 2022 A4 for a spin, no problem man my treat." "Yeah your car is in great shape; we could give you $15,000 for it right now, that'd take care of your down payment on this new one, its nice isn't it, don't worry about the monthly we can discuss that later" Just stop talking to me. I will pay so much more to not be talked to (and, really, compared to most dealers nowadays; its hard to say if Carvana is even "more expensive"). I feel extremely, EXTREMELY, confident in saying that this attitude has sold Teslas to three people in my bubble. You can start the process to buy a Tesla with Apple Pay. Seriously. Their new delivery process involves ZERO people; you drive to the store, the app tells you the ID of the car which corresponds to a piece of paper hanging in the windshield, you walk around the parking lot looking for it, if there are issues then people get involved; otherwise you drive away. That's it. I am buying a Tesla right now, even though I rather like the Mach E, because they make it so dangerously easy, and I have no clue how to buy a Ford. What's their delivery estimation? Is the price quoted on the site what I'll actually pay? Do I call someone? God, I gotta actually talk to someone? I gotta drive to the dealer? In person? Screw that, Tesla makes it easier, they get my $60,000. Carvana made mistakes. But their model wasn't some VC abbaration like so many SV companies. They actually struck on something new, in an industry that needed that innovation, and that discovery has since (or maybe, in parallel) been applied by other companies in the industry. They screwed up, but I'll miss them.
- epa 4y ago
  Oh no, talking to someone
dimmke 4y ago
I loved Carvana because I bought a car from them for about the same price I’d pay at a dealership but it was all online and I didn’t have to feel like I was getting swindled at any point. The experience of buying a car at a dealership is a fucking nightmare. It’s awful. It’s the worst customer experience you can have in the United States. There’s been some serious issues with the used car market fluctuating over COVID but it’s very reductive to now say “oh they were bad the whole time just another unprofitable unicorn”
- jrnichols 4y ago
  I'm old enough to remember iMotors and how it too made the online car buying experience decent. Carvana has done the same thing, 20 years later. Car dealerships, for the most part, have not evolved at all or even tried. The experience is still a huge pain in the ass, and they know it.

jacquesm 4y ago

> Subsidising the cost of good-but-unprofitable service using investment dollars (Carvana was losing thousands per sale pre-pandemic) doesn’t build a sustainable business unless it’s part of a strategy. Unfortunately that summarizes a fairly large fraction of the presentations aimed at VCs.

gmd63 4y ago

I think you can generalize even further and say that this story applies to most companies flooded with investor capital. Take Uber for example. The VC subsidies convinced a significant portion of people to upend their lifestyles and attempt to make money in an ecosystem where prices were artificially juiced by VC money. It's ironic that free market types are completely for subsidies when the private industry does it, although public and private subsidies both have issues. At least government subsidies have a benevolent intent usually. VC subsidies are usually about hiding the true market value of a product to attract customers who otherwise wouldn't have shown interest until it's time to crank the money milker.

gmd63 4y ago
There really should be a law against this. It's jarring to the economy to confuse people with artificial prices when your sole goal is to snap a customer base into some long term reliability on a platform or product that isn't necessarily any different after the subsidy runs dry and it needs to become self-sustainable.
- hgdfhgdfhgf 4y ago
  Why should there be a law? People benefited with cheaper taxis and VCs lost their money
  - ojbyrne 4y ago
    VCs lost other people’s money. I think that bill has yet to come due.
  - gmd63 4y ago
    when you skew the incentives in the economy such that people focus on developing skills that are based on artificially juiced things that aren't actually that valuable (see Axie Infinity) it's bad for folks' livelihoods long term
dehrmann 4y ago
> The VC subsidies convinced a significant portion of people to upend their lifestyles and attempt to make money in an ecosystem where prices were artificially juiced by VC money. People didn't seriously upend their lives to drive for Uber until they retire. The people who were hurt by Uber were people who bought taxi medallions and suddenly found themselves competing with unlicensed taxis. But on that point, as much as it sucks for them, their monopoly status meant the service was overpriced and didn't innovate. Uber might have been underpriced when it was subsidized, but it's still cheaper than taxis and makes rid hailing easier. Don't forget that even after the reality of things set in, Uber is still a $50B company. There's a real business there.

hn_throwaway_99 4y ago

I'm not really sure I agree with your argument. It seems quite clear that what has really contributed to Carvana tanking over the past year was they vastly mispriced their product. What happened to Carvana is essentially exactly what happened to other companies that misjudged the effect of the pandemic, e.g. Zillow with their bad experiment with house flipping (paid too much for houses) and Bright Health (vastly underpriced their insurance due to impact of COVID). But I want to emphasize, I would have gone to Carvana even if it were considerably more. The trusted, online-only buying experience is just something I'm totally willing to pay for, especially given how extremely awful the normal used-car buying experience is.

phphphphp 4y ago
Depending on exactly when you bought your car from Carvana, Carvana likely lost between $2,000 and $5,000 on your purchase. Carvana has never made money on selling cars. If you're willing to pay $5,000 more for a used car because you'd like good service, then there are a great deal of options available to you. The simplest option is to go to a reputable dealership that focuses on customer service (which have existed and continue to exist!) or you could find a legacy player that is moving into the space. Elsewhere in this thread, someone mentioned that they recently had a great experience with CarMax. At its core, my argument is that there is a sweet spot in which you can get great service from these "boring industry + technology + money" companies but that's because they're actively pursuing good customer service at any cost with no consideration for making money. As soon as the company (or its investors) realise this behaviour is unsustainable, they forget all about their narrative and go all in on making money -- which is when the quality of the service slips. The amount you pay to Carvana (more or less than you'd pay elsewhere) doesn't have a relationship to the quality of service you will receive, because it's not a "normal" business. There can be positive consumer outcomes from companies that approach business like Carvana: in the short term, customers get investor-subsidised products, and in the long term, other players in the industry get to learn from consumer reception (e.g: CarMax probably learned about demand for higher quality service from what Carvana demonstrated early on) but Carvana specifically is doomed to failure because it isn't a sustainable company that made a bad decision during the pandemic... it's been unsustainable its entire life.

rhaway84773 4y ago

You see this with airlines. People keep complaining about how flying has become so much more unpleasant. But other than a small minority, the customers almost always pick lower prices over any improvements in service. And the same is probably true for buying a used car. Folks may talk about how the experience is poor, but at the end of the day price is what will drive their purchase. So whoever gives the lowest price, which often translates to a worse experience, will succeed in the marketplace.

tristor 4y ago

I think you could generalize much further and just say this is what happens to companies that don’t understand the basic principle of CAC to LTV ratio. If it’s negative, when the funny money stops, it’s gonna be a rough ride.

BeFlatXIII 4y ago

I wonder what we can do as consumers to convince investors to make stupid decisions to subsidize unprofitable industries so we can enjoy cheap prices.

friendly_deer 4y ago

I was pattern matching Carvana to a company called Sidecar[0] this summer when I heard my friend say he bought a car for something like $5k less than any dealership in town was offering it for. Sidecar was the "3rd company" that did ride-sharing in my city in 2014-2015, after Lyft and Uber. Somehow they were selling rides from any point in the city to any other point in the city for $1. I suppose it was getting subsidized by VC money; and I took probably $500 worth of rides for a year or so until it shut down. [0] https://en.wikipedia.org/wiki/Sidecar_(company) https://en.wikipedia.org/wiki/Sidecar_(company)