25 Feb 22

Acquiring Adesa U.S., online remarketer Carvana gambles on ‘physical’

For a price of $2.2 billion, online used-car marketplace Carvana has acquired Adesa U.S., the auction subsidiary of Kar Global. The deal – price tag: $2.2 billion – marks the inclusion into America’s main online car remarketer of a more traditional, ‘physical’ business model. 

Today, Carvana is online-only. Its customers use mobile or web apps to shop, buy and finance the used vehicles it provides. Those vehicles can be delivered directly to home, or picked up from one of Carvana’s 30 ‘car vending machines’ across the United States. 

Intriguing move

Additionally, Carvana operates 15 inspection and reconditioning centres, to evaluate and if necessary, fix the vehicles before they’re sold. Customers can’t just buy, but also sell vehicles to Carvana. 

While the direction of travel in remarketing industry – both in North America and Europe – is from offline to online business models, Carvana’s acquisition of Adesa U.S. is an intriguing move in the opposite direction. Why? 

The answer: the chance to buy Adesa U.S. proved to be just too good an opportunity to pass up. Not just size-wise, also in terms of timing. 

In Q4 2021, Carvana sold just over 113,000 vehicles, generating $3.75 billion in revenue. While that was a 57% increase over the same quarter the previous year, it did mark a slowdown in growth compared to the preceding quarters. And in fact Carvana – which has yet to turn a profit – saw its Q4 losses increase from $154 million in 2020 to $182 million in 2021. On a slightly more positive note, its annual losses declined from $462 million in 2020 to $287 million last year. 

Massive opportunity

Acquiring Adesa U.S. provides Carvana with a massive opportunity for growth. Adesa U.S. has 56 physical sites, used for inspecting, reconditioning and auctioning.

  • This will help increase Carvana’s reconditioning capacity from 2 to 3 million units annually.
  • Combining the infrastructure of both companies puts 78% of the U.S. population within 100 miles of their inspection and reconditioning centres. 
  • Adesa’s physical auction sites will increase Carvana’s auction capabilities and strengthen its relationships with important industry players.
  • Last but not least, there’s the scope of increased revenue. Last year, Adesa U.S. processed more than 1 million transactions, generating more than $800 million in revenue. 

For now, Carvana will continue to operate Adesa U.S.’s auction business as a standalone brand. It remains to be seen whether Carvana can use the potential of this acquisition to achieve growth, or if the additional operational expenses will simply eat up too much in terms of cost for it to become profitable. 

The acquisition was made using most of the almost $3.3 billion in financing Carvana received from two banks (J.P. Morgan Chase and Citi) to fund the purchase. The remaining $1 billion will be used to upgrade Adesa’s 56 physical sites across the country, to include Carvana’s standard inspection, reconditioning and logistics capabilities.  

Image: one of Adesa's 56 physical sites across the U.S. (Shutterstock)

Authored by: Frank Jacobs