How Do Dealers Like Carvana Make Money?

The new-car buying process has evolved a lot in the past decade. We went from having to walk into multiple dealerships and finding the right car in person to now simply being able to go online and sift through dealer inventories with the click of a mouse.

What revolutionized the car-buying process, even more, was the advent of dealers like Carvana, which allows you to browse thousands of cars on its website, buy one, and then have it shipped directly to your house. It’s a great business model, but how do they even make money?

The car business is the same no matter what

To put it shortly, any business that sells a product makes money by buying, or making, the product at a low price and then selling it at a higher price to make a profit. The car business is no exception.

Every dealership that you’ve driven past makes money the same way, however, the difference between a traditional dealer and Carvana is that you’re not hassled by a salesperson to buy a car and then hassled even more by the finance manager trying to sell you the extra warranty and other products. Also, most traditional dealers sell new cars.

That may have been a downfall for Carvana in the past few years as it has made a relatively small footprint in the used car market. Although, it seems to be picking up the pace over the past year, thanks to its rising popularity and unconventional sales process.

A picture of one of Carvana's car vending machines.
An eight story car vending machine, operated by the online used car dealer Carvana, that dispenses purchased cars to customers is seen in Huntington Beach, California on August 16, 2019. | MARK RALSTON/AFP via Getty Images

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Advantages of using Carvana

Buying a car through Carvana has some major advantages over going to a traditional dealership:

  • Transparent Pricing: The price of the cars that you see on Carvana’s site is what you get. There are no discounts available or games to play.
  • Ease of searching: You can easily search through thousands of cars from the comfort of your own home.
  • No pushy salespeople to deal with
  • There are a wide variety of cars available almost nationwide
  • It’s the same sales process no matter where you are located
  • 7-day guaranteed returns if you don’t like the car

With the combination of all of the advantages listed, Carvana is ahead of the traditional dealership game and provides a comfortable and convenient car-buying experience, especially during these pandemic-stricken times.

Online car shopping is easy
Online car shopping is easy | OLIVIER DOULIERY/AFP via Getty Images

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So is Carvana making a loads of money?

You would think that a convenient and comfortable sales process, as well as tons of inventory almost nationwide, would make Carvana one of the wealthiest companies in existence. However, you would be surprisingly wrong. According to The Motley Fool, the company “finished last year with $883 million in debt and $76 million in cash, and has already done multiple secondary offerings and debt raises” but is fortunately currently on the financial uptick thanks to an improvement in acquiring vehicles from customers, thus lowering costs and improving profits.

According to ProductMint, Carvana is currently worth around $21.5 billion, however, it has yet to turn a profit due to the five rounds of venture capital funding from companies like Y Combinator, Ally Financial, and Georgiana Ventures. So, how does Carvana make its money? Through selling cars and from offering to finance for its vehicles, although, it could be a while before it starts to turn a real profit.