Are Carvana’s Title Problems Due To Lien Payoffs?

You’ve probably seen in the news where the automotive retailer Carvana is having all kinds of problems with its company. Their stock is down, there’s title problems, some states are canceling their dealer’s licenses, some states even the attorneys general are filing prosecutions for violations in those states. Today we’re going to talk about one specific problem that Carvana is having that affects consumers directly, and that is title problems. Why are they having title problems? What is behind it? Why does a licensed new car dealer have a problem with something as simple as a vehicle title? Don’t forget to put your comments below and questions that you have about this subject so we can interact with you and answer some of your questions and put them in future videos.

Carvana’s Title Problems
So here you have a large national automotive dealer chain, one of the largest in the country, selling cars to consumers and not giving them a legal title document. Why is that? Why would a legitimate large vehicle dealership not just give a title? How hard could it be? They paid the money, they signed all the paperwork, so why can’t the customer get their title for their car? They need the title. They have to present it to the DMV to get license plates to get ownership proof. What’s the problem with the title?

Reasons for Missing Titles
Well, there’s a couple reasons why a car dealership would not have a title. First of all, they’re not supposed to sell a car unless they have the title, but there’s a couple reasons why it might occur. First of all, worst-case scenario, the vehicle’s reported stolen. It’s a stolen car. Well, that’s not what’s going on with Carvana. It’s not stolen cars. Second reason is the title was somehow lost or damaged at the dealership after they bought it. Because you know, when the dealership buys a car, they normally get these cars from auctions. Auctions like Mannheim, Odessa, local auctions like Southern. They buy these vehicles and they get a title. Well, sometimes the dealership might lose it or it gets damaged. That’s a very rare event. It’s not something that would happen as frequently as what’s happening with Carvana. Even though they sell a lot of cars, they’re not going to lose that many title certificates. They’re not going to damage that many title certificates because a title is an actual paper document. It’s not electronic, it’s not online, it’s not crypto, it’s a paper form. They’re not losing the titles.

Administrative Issues
Another reason why customers aren’t getting titles is maybe Carvana has the title, but they’re just not getting around to doing the paperwork. Maybe they’re understaffed. Maybe their title department is not handling the transfers properly. From all reports from the company itself, from the investigations that have been done, it doesn’t seem like that’s the problem. It doesn’t seem like they don’t know what they’re doing because it’s not really that hard. You don’t have to know that much about processing a title to figure out how to do it. In fact, individual consumers do it all the time. When you buy a car on Facebook or Craigslist or OfferUp, you transfer a title, you sign the back, hand it to the buyer, it’s done. It’s not that hard to figure out. It’s not a complicated part of selling vehicles. In fact, there’s dozens of YouTube videos, even on our channel, on many other channels, that tell you how to transfer a title. So it’s not like they don’t know what they’re doing. The time it takes to transfer a title isn’t a lot of time. It’s way less time than it takes to do the paperwork for the loan, do the paperwork with the customer. Look, they have a process in place to transport vehicles to a customer’s front door with a tow truck you’ve seen on commercials. So if they have a way to figure that out, it’s not like they don’t have the ability to have a title transfer department. That’s not the problem either.

Financial Considerations
What could be happening has to do with loans. And again, we have no evidence of this. We’re not accusing anybody of this, but this is one possible reason why Carvana is not transferring titles. It could be that they physically don’t have the title in their possession for a vehicle they bought. Why would that be? Well, just like consumers, large automotive retailers, Carvana being one of them, but even any other large dealership you drive by every day, the Ford store on the corner, the big Toyota dealership in town, CarMax, AutoNation, all the big automotive companies, or even small dealerships, they get loans on their cars, on their inventory. They get a loan from either their corporate financing bank. So if you’re a large dealership, you have a commercial loan from some local bank or maybe Chase or Bank of America, and that commercial loan helps you grow your business, fund your operations, and give you an inventory line of credit. That inventory line of credit is called a floor plan line of credit. Floor plan comes from showroom floor, right? The floor of your dealership has all your cars on it. Even some furniture stores have floor plans to finance all their inventory. If you add up the inventory in large automotive or large retailing companies, electronics, automotive, furniture, there’s a lot of money sitting there. In a car lot, there could be five, ten, fifteen million dollars worth of cars. Most dealerships don’t have that cash laying around, so they get a line of credit to finance these cars. Well, when you get that line of credit, the banks hold the title. You get that fifteen million dollar line of credit, the cars are sitting on your front lot. They let you have the cars, but they hold on to the title certificates until you pay for them, until you pay off that loan. So when you sell a car to a consumer, you get the money from that sale, you give it to the bank, they give you the title, and you give it to the customer. Well, what if you sell the car to that consumer and you don’t have, you need money, you’re short on cash. Maybe you don’t pay the bank loan off right away. The bank’s gonna hold that title. Maybe that’s why you don’t have the title to give to the customer.

Possible Loan Issues
Do we know that to be true? No, but this has happened before. There’s been many new car dealerships, big, huge high-end dealerships that have gone out of business because they got behind on their floor plan line of credits, called being out of trust. It happens every month. You read about a dealership that happens to you. You wouldn’t think that it would happen to somebody like Carvana, but if you have money problems, if you’re a big company, your money problems are bigger. Bigger company, bigger problems. There’s another financing arm that dealerships take advantage of, and that’s the auction credit department. When you buy cars from an auction, a lot of times the auction will say, “Look, you bought all these cars, you don’t have to pass right away. You bought ten cars today, they’re twenty-five thousand a piece. That’s two hundred fifty thousand, quarter million dollars in one day. Don’t worry about it, just take the cars, put them on your lot. When you sell them, give us the money.” Because auctions know that most dealerships sell their cars within fifteen, twenty, thirty days. Most dealerships have a thirty-day turn. If you have an inventory vehicle that’s more than forty-five days old, you got to get rid of it. That’s old inventory. It’s stale. You got to get rid of it. So most auctions figure, “Look, they’re good for it. They’re going to sell it. They’re not going anywhere, and they don’t have the title until they pay us. So we’re safe.” So the auction could be holding the title. Now again, if the dealership, whether it’s Carvana or anybody else, sells that car for let’s say thirty thousand to make a five thousand profit and decide, “Look, we’re short on payroll, we’re short on taxes, we don’t have enough money to run our operations. Let’s keep that thirty thousand, use it for some other things, and we’ll catch up with that sale later at the auction.” Is that happening? We don’t know, but this is one reason why titles might not be in possession of a dealership.

Complex Financial Scenarios
What if it’s both? What if a dealership, generic dealership, and we won’t pick on Carvana, but what if a dealership buys a car from an auction and gets a float on their money? They finance it, they ship the car to the dealership. When it gets here, they call up their floor plan lender and says, “Hey, put this car in our credit line. Okay, we put it on for twenty-five thousand.” Now they have an extra twenty-five thousand plus a free car. Now they sell it to a customer for thirty thousand. They get that money. They have fifty-five thousand cash, and they haven’t come out of pocket yet for that vehicle. Could that happen? In theory, it could. It remains to be seen whether or not that’s what’s going on behind the scenes at a place like Carvana. It may not be. But for that many cars in many, many different states, for a large operator like Carvana to have title problems where there’s investigations and look, they’re willing to let their license be revoked by a state rather than fixing title problems. How bad does that have to be? If you’re a car dealership, your license is the only thing keeping you in business. If you don’t have a license, you’re out of business. And there are literally some locations for Carvana that have been revoked and yanked their licenses, and they’re shut down. So how bad does it have to be to let the licensing bureau yank your license? Wouldn’t you fix that unless you don’t have the money?

Permits and Compliance
There are even some new Carvana locations that are in the process of being built. They’ve done site work, they bought the real estate, they’re starting to build that big vending machine tower. And because of the fact they’re not in compliance, their permits are getting pulled for their new location. So again, how bad does it have to be? Look, every company can maybe do something a little bit wrong or do something procedural or paperwork and get a violation or get a fine or maybe get a reprimand. But in order for a license to be revoked, it’s pretty serious. Most state licensing bureaus don’t pull your license unless it’s very, very serious, right? They give you a fine, they give you a write-up. You see it all the time in the newspaper, you know, restaurant gets a fine for, you know, maybe having, you know, leaving dirty dishes out. You may see, you know, an employer get a fine for not having the right kind of, you know, cones blocking, you know, construction workers, whatever. But you almost never see licenses get revoked. Carvana licenses are getting revoked, so that’s a pretty extreme event to have happen. The question is why?

Conclusion and Speculation
We don’t know at this point. It’s not in the news yet. If there is a financing problem or a cash flow problem where these vehicles have loans on it, that will probably be the last thing anybody finds out about. That’ll be kind of like the, you know, the last piece of the onion that gets peeled back after everything else crashes. You know, as of today, their stock is down about thirty bucks. At one point it was three hundred fifty, three hundred sixty. It’s a ninety percent discount. There are the license revocations. That’s in the news. There are fines. That’s in the news. If it’s something as serious, if it’s something as serious, remember I said if, as this financing issue, that’s going to be the last thing that Carvana wants out there. Because that implies things like securities violations, stock manipulation, false reporting. And again, if that’s what they’re doing, which again, we have no reason to think that it is, that will be one of the last things that comes out. But at this point, we don’t know why there’s title problems. It’s just not it. This never happens. This kind of severe title problems at a legitimate new car or high-end used car type operation. You don’t see this. So we’re all very curious to see why. Purely speculation. This is one reason it could be. It could be unpaid financing, unpaid loans behind the scenes for the inventory.

Call to Action
If you are a buyer of a vehicle at Carvana and you have information, put in the comments or send us an email. If you have title problems, put in the comments or an email. We only hear more information from the front lines about what might be happening with this retailer. Been in the automotive and title business for over thirty years, and we have seen dealerships go out of trust, dealerships not pay off their floor plan, dealerships not pay off their credit lines, but it’s never been something this big. So if that is what’s happening, this would be a very unique and significant situation. Let us know what you think in the comments. Keep an eye out for future videos, and we’ll keep you up to date.

Visit Our YouTube Channel for more insights and discussions on various topics. Consider subscribing to our YouTube channel. Click here!