Carvana Title Problems Indicator Of Larger Problems?

Look, we promised to try not to keep beating this dead horse with Carvana, but there are some interesting developments. Even though we’ve been touching on it every week or so and we think that’s the last you’re going to hear of it, there’s more.

Stock Performance and Decline
Here’s the thing: Carvana, even though it had fallen from 300 plus down to 50, then to 30, then hovered around 20 for a while, took an even bigger nosedive last week. It went down from the mid-teens (15, 16) down to eight point something. You can see their chart here. This is a one-year chart. It was up 300; now it’s down, you know, in the eights.

Reasons Behind the Decline
Why is this? What’s going on with Carvana? We’ve talked about before what some of the risks might be. What’s the automotive industry component of this? What is the automotive structural documentation part of this? Well, every aspect of their business is in decline: their top-line sales, their net profit, their profit per vehicle, their expenses are up, and now they have some debt obligations to take into account. Their gross profit is off more than a third, and there are a few aspects in play.

Title and Registration Issues
We’re going to talk mostly about the documentation part of it—the title and registration part of it. When you have a major automotive company like Carvana, or any large dealership, that has chronic documentation problems, that in itself is a canary in a coal mine. Look, every dealership can run into a title problem. We deal with this all the time with vehicle titles. We do titles for dealerships, auctions, lenders, financial institutions—all the time. Anybody can run into a title problem. It’s not that nobody’s immune to it, but normally it’s an exception to the rule. A dealership might have one or two title problems a year; a bank might have a few title problems a week if it’s a large financial institution. For a public company the size of Carvana to have ongoing title issues and chronic title problems, that means something.

Nature of Title Problems
It doesn’t necessarily have to be nefarious, like they’re selling stolen vehicles or they’re not getting titles from lien holders or they’re not paying off cars. It doesn’t necessarily have to be that, but it does mean that one area of their business—managing title paperwork—is not being executed properly. That’s just one small area. There is marketing, sales, finance, and then you have title paperwork. Title paperwork is not the most complicated part of a dealership. It’s not the hardest to do. It doesn’t require the most people. It’s actually pretty straightforward. The rules and the processes for doing car titles are established. You can read the requirements at the DMV checklist. You can get instruction from the titling division in the state. There’s no mystery to it.

Complexity of Other Areas
Sales, on the other hand, has some mystery to it. Marketing has a lot of gray area; in marketing, there’s a lot of art versus science. So, if a company is not doing well in sales and not doing well in marketing, you can kind of say, “Well, they’re at least trying. They may not be great at it, but there’s some gray area.” If the one part of retailing motor vehicles, which is car titles—something very specific and very etched in stone—is not being executed, that’s a management question. How do you not have the ability to execute something that is very clearly defined within a company, a small part of that company, and something that every dealership gets right for the most part? Even dealerships that fail financially usually get their titles right.

Speculations and Hypotheses
Now, there’s been a lot of speculation about why that’s the case. Maybe they didn’t hire enough people. Well, Carvana has a lot of employees. Maybe they’re just unorganized. Well, that’s a problem. If you’re unorganized in that area, that kind of indicates that you might not be organized somewhere else. Maybe it’s something more nefarious. Maybe there are problems with these titles. Maybe there are problems with liens. Maybe there are floor plan loans that are not being paid off fast enough. Again, we’re not accusing of anything, but we’re just speculating on what could be the reasons without conspicuous or transparent reasons from Carvana why these title paperwork problems are still happening. You can only speculate, right? You don’t have a reason to know what the actual fault is inside the company.

History of Title Problems
And it’s not something that just started. This has been going on for several years. The first complaints about Carvana’s car title paperwork problems were at least as far back as 2020. Sometimes you can go back and find some in 2019. That’s two or three years ago. If you can’t solve a title problem in two or three years, maybe it’s not solvable. Maybe it’s something chronic within your business that you cannot solve. It’s probably not just a numbers game because bigger companies obviously have more problems, but it’s happening in all of their operating areas. All the states that they operate in have had some title problems—some minor, some major. Some of the states have shut them down. In fact, this week another state shut down Carvana’s license because they didn’t get titles out fast enough. There are some people still waiting more than a year for titles for vehicles.

Market Sentiments
Again, not to beat a dead horse or kick somebody when they’re down. We’re not trying to disparage Carvana. We don’t know if they’re a good company or bad company. We do know that a lot of people in the financial side are betting against them because their stock has gone down. People that put their money where their mouth is with their opinions say that their opinion is, “We don’t like Carvana. We’re selling the stock down to eight dollars and below.” One of the large financial research companies put a one-dollar stock estimate on the price of their shares. They say their stock could be worth a dollar. Basically, it’s nothing.

Concluding Thoughts
Some of it has to do with the headwinds in the economy: inflation, interest rates, car prices, many other things. But when you have a part of your operation that’s relatively straightforward—it’s not simple, you know, car titles is hard to do, but it’s straightforward, it’s easy to define and understand—you can put people in a room, tell them exactly what to do, there’s no question about it, and that’s not getting done, that might indicate that they’re not running a tight ship, right? That there are other parts of it that are loose. And in an environment like we’re in, with inflation and interest rates and vehicle market upheaval, if you’re not running a tight ship, you’re probably not going to survive. Even if you are running a tight ship, it’s going to be a struggle. If you’re not running a tight ship, it might make it even harder or impossible to dig yourself out of such a hole. Allegedly.

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