Carvana plans to lay off 12% of workforce as it finalizes expansion deal

Selling cars online Carvana company

CVNA -5.39%

It plans to lay off 12% of its workforce after striking a deal to expand operations that forced the company to borrow on onerous terms.

Carvana CEO Ernie Garcia III said in an email to employees that the company has outgrown its growth strategy and will be laying off about 2,500 workers, centered around the company’s operations. The Wall Street Journal has seen the email.

“It has always been the right move to start building for growth very early when we expect it to emerge,” El-Sayed said. Garcia wrote in the e-mail. “This strategy worked with us every year until this year.”

A company spokeswoman said that recent macroeconomic factors are significantly impacting the retail auto market, and the headcount adjustment will restore a better balance between sales volumes and staffing levels at the company.

Carvana’s sales fell sequentially for the first time ever in the first quarter as it posted a net loss of $260 million. The company’s shares fell 59% in the weeks since its results were announced on April 20. Shares of the company closed Monday at $38.77, down 90% from an all-time high of $370.10 last August.

The used car dealer, which offers an almost entirely online shopping and selling experience, has seen a massive expansion of its business during the pandemic as shoppers turned away from brick-and-mortar dealers and Covid-related production issues in the auto industry starving the new car market.

It has fueled that expansion through low-cost borrowing, while leveraging its balance sheet to fund a steady expansion as it burns cash. Much of the company’s total profits were booked by accounting for gains from the sale of the auto loans it created before it was packaged and sold to investors, a practice that made it unique among most of its peers.

Carvana’s recent fall reflects falling stocks of other pandemic hotspots such as home fitness equipment maker Peloton Interactive.And

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Also Tuesday, the company struck a deal to expand radically by buying Adesa’s US business of used car auction sites from KAR Auction Services. company

for $2.2 billion.

This deal adds 56 locations nationwide with about 6.5 million square feet of facilities, Carvana said. The acquisition will allow Carvana to return to rapid profitable growth with the industry inevitably recovering,” said Garcia.

Financing the purchase was an issue. JPMorgan Chase & Co. and Citigroup company ,

Banks hired Carvana to raise about $3.3 billion for the deal, initially fighting to put bonds and preferred stock at a reasonable price. Investors have demanded returns of up to 11% for bonds and 14% for stocks, according to the fund managers who have considered participating.

Banks eventually received a lifeline from Apollo Global ManagementAnd

which agreed to buy half of the $3,275 billion bonds at a 10.25% coupon in early May. The bond has since lost about 9 percent of its value as fears of an economic recession roiled the stock and high-yield bond markets, pushing investors out of their riskiest group.

Carvana also issued approximately $1.2 billion in new stock, a large portion of which Mr. Carvana purchased. Garcia and his father, Ernie Garcia II, the majority owner of Carvana.

During the pandemic, Mr. Garcia II sold $3.6 billion of Carvana stock over a 10-month period while the company’s stock traded significantly higher.

write to Ben Foldy at

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