Caravan stocks plunge as used car prices drop

Carvana, an online marketplace for used cars, saw its shares continue to fall Monday, dropping more than 50% in the previous two trading days. This is the continuation of an erratic downward trend that started after the company released its third-quarter results on Thursday.

Shares fell 15% on Monday to end the day at $7.39, extending a dismal trend that started on Friday when the business saw its worst-ever one-day performance, a 39% decline. The decline started after disappointing earnings as a result of weaker-than-expected sales. Carvana (CVNA (CVNA)) could be worth as little as $1 per share, according to Morgan Stanley analyst Adam Jonas, who pulled his $68 price target on Friday. He cited the weak used-car market and unstable financial systems as factors that "add material risk to the outlook." A basic range of $1 to $40 per share has been substituted for Jonas' previous objective.

Due to market volatility, rising interest rates, and predictions of a recession, the continued rapid slide resulted in frequent halts in trade into Monday morning. This could indicate that the cars Carvana recently bought may soon be worth less than the firm had anticipated.

Months ago, when car costs reached a point where many customers were priced out, trouble for the used car industry began. The largest used automobile dealer in the country, CarMax (KMX (KMX)), has seen a 50% decline in its stock price since the year's beginning. The company cited "car affordability issues that arise from widespread inflationary pressures, as well as mounting borrowing rates and low customer confidence" as the cause of its subpar performance in September.

As a result of a lack of parts, particularly computer chips, which restricted the supply of new automobiles at a period when customer demand for vehicles was particularly high, car prices had been continuously rising over the previous two years, aiding in Carvana's expansion. Given that almost 40% of US households purchase a car each year, these increasing prices have a significant impact on overall inflationary pressures.

The Federal Reserve, which is trying to reduce consumer demand and slow the economy, has recently increased interest rates at a historic rate in response to efforts to contain prices. Because many car purchases are financed by customers, the automotive industry is particularly vulnerable to an increase in interest rates.

The Manheim Used Vehicle Value Index, which analyzes typically used automobile prices, shows that as a result, used car prices are down 10.6% from a year ago.

Companies that deal with secondhand cars, like Carvana, are now coping with the drop.

"We were always going to have to traverse difficult periods and cycles on our way to fulfilling our mission," the company wrote in its letter to shareholders last week. "On the other side of this period, we plan to be a better company as a result of having gone through it."

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