Carvana’s car-vending machine… is running out of quarters as the lure of cash-burning used-car companies wears off. Yesterday, private-equity giant Apollo reportedly agreed to buy $1.6B of Carvana’s corporate debt (think: investors lend Carvana $$ through bonds, and then get paid with interest). Apollo’s coming to the rescue after Carvana struggled to raise money for an acquisition amid slowing demand for its refurbished cars sold online.
Your 2018 Honda Civic… is worth more than you think. Used-car sales hit record highs during the pandemic as supply shortages made new wheels hard to come by. Some models were even selling for 20% more than their new editions. Carvana made it easy for shoppers to buy online and have their cars delivered, without hassling with a dealership. But as car shopping has become more like house hunting (see: low inventory, high prices), it’s hurting demand — and not just for Carvana:
The pandemic thriver model is broken… and private equity wants to be the glue to fix it. From Airbnb to Carnival, PE firms have thrown lifelines to numerous companies needing quick cash to combat pandemic-fueled losses. In turn, firms like Apollo guarantee dividends for investors and a big payout down the road. It’s worked before: Apollo's fund jumped 10% after Hertz paid back part of a $1.5B loan less than a year after getting it.