Why This Used Car Company Thinks Tariffs Could Be Good for Business

New York Times

13-05-2025

Automakers are worried that President Trump's tariffs on imported cars and auto parts will soon increase their costs and start eating into profits.
But at least one business in the auto industry thinks the tariffs could give it a lift. That company is Carvana, an online retailer of used cars that has gained fame for storing vehicles in distinctive 'vending machine' towers.
The Trump tariffs, which include levies of 25 percent on vehicles made in Mexico, Canada, Germany and many other nations, are widely expected to raise the prices new cars and trucks, forcing more car shoppers to opt for a used vehicle. An agreement to lower tariffs on Chinese imports that the administration announced on Monday will not change the tariffs on cars and auto parts.
'To the extent that car prices go up, Carvana is probably positioned to be relatively advantaged as consumers look for high-quality cars at a lower price,' the company's founder and chief executive, Ernie Garcia, said in an interview last week. 'We think that will cause them to shift into used vehicles and into the savings that are available via online buying.'
Mr. Trump has said he imposed tariffs in hopes of forcing manufacturers to make more goods and create more factory jobs in the United States, although he has also claimed that tariffs would help achieve other goals like reducing unauthorized immigration and drug smuggling.
Automakers are bracing for the impact.
In the past several days, General Motors said the tariffs would increase its costs by $2.8 billion to $3.5 billion this year, even accounting for measures the company is taking to adapt. Ford Motor, which makes more vehicles domestically than G.M., estimated the tariffs would cost it $1.5 billion on a net basis. Toyota Motor, which imports many vehicles from its home country of Japan, said the tariffs would cost it $1.3 billion in March and April alone.
Analysts have predicted that the prices of some imported vehicles could rise by up to $10,000, and that sales of new vehicles could slow sharply this year.
Alan Haig, whose consulting firm in Fort Lauderdale, Fla., advises car dealers, said Mr. Garcia was on the right track about how consumers were likely to react.
'I think you're going to see an increase in used car sales because of the tariffs, and I do think there will be more customers visiting Carvana websites because that's essentially their sole focus,' he said.
But there could also be a downside. If the tariffs cause a recession, or vehicle prices rise too much, sales of both used and new automobiles could decline. Already, used cars sell for about $1,000 more in auctions, on average, than just two months ago.
Mr. Haig said it would take some time for the full impact to be felt. The prices of most vehicles on dealer lots haven't increased significantly, yet. The first batches of imported models affected by the tariff on vehicles, which went into effect in early April, are just starting to arrive. Tariffs on imported engines, transmissions and other components went into effect on May 3.
Whatever happens next, Carvana is on much sounder financial footing than it was just a couple of years ago.
When the Covid pandemic set off a boom in used car sales and online buying, Carvana became a favorite of investors, and its stock soared. But as demand softened, the company was left holding a large inventory of vehicles purchased at relatively high prices, and it began losing a lot of money.
At the same time, interest rates rose after Carvana had taken on billions of dollars in debt to buy Adesa, a used car auction company. Because of the heavy debt load and mounting losses, some analysts feared Carvana might not survive. By February 2023, its stock had crashed.
But Mr. Garcia was able to renegotiate its debt, reduce costs and streamline Carvana's operations. Over many months, the company cut jobs, sold off cars and turned Adesa into a provider of affordable cars and trucks. More recently it has built up facilities at 11 Adesa locations to repair and recondition used vehicles.
The work is now paying off. Last week, Carvana reported record results for the first three months of the year, with profits of $373 million, up from $49 million a year earlier. It sold 133,898 used vehicles, 46 percent more than in the first quarter of 2024. Average gross profit on each vehicle was just under $7,000.
The company accomplished this while keeping fewer cars in its inventory, spending less on advertising and employing about 4,000 fewer people than it did three years ago. Its stock has recovered much of the ground it lost.
'From 2017 to 2021, the company focused on growth,' Mr. Garcia said. 'We spent the last two years unlocking efficiencies. I think that is what has driven the dramatic improvement in our performance.'
Mr. Garcia is now aiming, within five to 10 years, for Carvana to sell three million cars and trucks annually, from about 500,000 now.
Many Wall Street analysts are again confident about the company's prospects, but see at least one hurdle. Auto mechanics are very hard to find, and Carvana needs hundreds more to reach its goal of fixing up used cars for sale.
'Labor is the key bottleneck,' Ronald Josey, a Citi analyst, wrote in a recent report.
Mr. Garcia said he was confident about Carvana's business now that it had restructured its operations, and he thinks it can do well regardless of how U.S. trade policy changes.
'I think it's now proven that, yes, customers have shown they are willing to buy cars online, and an online business model can deliver value,' he said.