Navy Federal Teams With TrueCar as Carvana Eyes Record Growth
Carvana aims to sell two million cars each year. TrueCar finds a partner in Navy Federal to market to military members.
Carvana continued its growth even in 2020, making its online retail platform a bigger threat to traditional dealers.
Credit unions and other lenders have watched Carvana as well, as it becomes an ever larger originator of car loans.
Navy Federal Credit Union of Vienna, Va. ($135.7 billion in assets, 9.9 million members as of Dec. 31) — the largest credit union and the largest car lender among credit unions — will launch a partnership this month with Carvana competitor TrueCar. The Santa Monica, Calif., company launched an online channel last year called TrueCar Military that offers special discounts to active or retired military personnel and their family members.
“The significance of this announcement cannot be overstated,” TrueCar President/CEO Mike Darrow told investors during an earnings call Feb. 24.
“Navy Federal has more than 10 million members nationwide,” he said. “Their participation is a major step forward in our goals to reach and serve the more than 40 million members of the military community and builds on our existing partnerships with Military AutoSource, GovX, veteran service organizations like DAV and Team RWB, and OEMs such as FCA, Audi and BMW.”
“To be certain, it will take time to bring this partnership to scale. Still, we believe the potential here is undeniable,” he said.
The Phoenix-based Carvana buys, reconditions and sells its own inventory of used cars (buying an increasing number directly from owners though its online platform). Its model features 27 multi-story car “vending machines,” fleets of blue and white trucks that deliver cars to homes, and 11 inspection and reconditioning centers.
TrueCar has no inventory and is capital light. It provides an online service that connects car shoppers with a network of dealers. Users of TrueCar bought 766,413 vehicles through its network of more than 3,700 dealers last year, down from 998,495 in 2019.
Carvana’s annual report released Feb. 25 showed it sold 244,111 used cars through its online retail portal in 2020, up 37.5% from 2019.
Its share is still tiny: 0.6% of the 38.4 million used cars sold last year, based on an estimate of the U.S. market from TrueCar. Right now, no one has more than a 3% share of the highly fragmented market, according to TrueCar.
But Carvana is thinking bigger: Selling two million cars a year (a 5% share at 2020 volumes).
Carvana’s revenues from retail car sales rose 38.6% to $4.7 billion in 2020, accounting for 85% of its total revenues of $5.6 blllion. Part of the other income it earns is from sales of the auto loans it originates.
And just as the used car market is highly fragmented, so too is car lending.
Carvana generally originates 75% to 80% of the loans for cars it sells. With average loan amounts in the fourth quarter being 87% to 92% of average prices, Carvana originated about $970 million to $1.1 billion in car loans in the 12 months ending Dec. 31, up 57% from a year earlier.
As a lender, Carvana’s production was roughly between the $900-million auto origination goal for 2021 of Teachers Federal Credit Union of Smithtown, N.Y. ($8.4 billion in assets, 355,731 members) and the $1.4 billion originated last year by State Employees’ Credit Union of Raleigh, N.C. ($47.4 billion in assets, 2.5 million members).
Carvana had planned to sell more cars last year, but then the pandemic hit. Although it launched an ad campaign that touted online buying and home delivery as “a safer way” to buy a car, it still had to deal with pandemic-related bottlenecks that slowed deliveries.
President/CEO Ernie Garcia said Carvana wasn’t hindered by demand. There was plenty of that. And it wasn’t its ability to acquire cars.
The biggest supply constraint has been that it needs more capacity to recondition cars. That takes time to change, but the company is on it.
Carvana opened four inspection and reconditioning centers in 2020, enabling the company to process 600,000 cars per year. It said it expects to open 10 more centers by the end of 2022, raising capacity to 1.25 million cars per year. From there, it will expand to be able to sell two million cars a year.
“We’re clearly building for a very large future, and we’re trying to make sure that we get in front of ourselves when we look at our supply chain,” Garcia said.
“The longest lead time components of that supply chain is building the physical facilities to do the reconditioning. The second longest lead time is training and hiring all the people to turn that capacity into active capacity. But we’re working very hard to get in front of it.”