Cliff Sosin

it was about 39 and change in 2021, fell to about 36 million cars or 34 million cars. I think it got as low as 34 annualized and sort of did 36 for the year or something like that. I might have my stats slightly off, but it fell.

it was about 39 and change in 2021, fell to about 36 million cars or 34 million cars. I think it got as low as 34 annualized and sort of did 36 for the year or something like that. I might have my stats slightly off, but it fell.

And this doesn't seem like a huge negative effect, but it was bigger than you might realize because what happened was franchise dealerships, I think you're Ford or Toyota dealership, when a lease vehicle is returned, unless the customer exercises their buyout, the landing dealership, the one you return it to, gets the car at a price that's been set at the time the lease was created.

And this doesn't seem like a huge negative effect, but it was bigger than you might realize because what happened was franchise dealerships, I think you're Ford or Toyota dealership, when a lease vehicle is returned, unless the customer exercises their buyout, the landing dealership, the one you return it to, gets the car at a price that's been set at the time the lease was created.

And so when car prices rise, if the... lease returning person, of course dealership has no incentive to tell them that they have the right to buy the car, doesn't know this, which many people haven't read the fine print of their leases, and they return the car. The dealership gets basically a really cheap car. What this turns into is a big subsidy for franchise dealerships.

And so when car prices rise, if the... lease returning person, of course dealership has no incentive to tell them that they have the right to buy the car, doesn't know this, which many people haven't read the fine print of their leases, and they return the car. The dealership gets basically a really cheap car. What this turns into is a big subsidy for franchise dealerships.

And those dealerships would then turn around and sell this car. It would look to them like a big profit, but was actually really cheap relative to wholesale prices. But what that's doing is putting enormous pressure on non-franchise dealerships who don't have access to the super cheap inventory. Oh, by the way, that's us. We're a non-franchise dealership.

And those dealerships would then turn around and sell this car. It would look to them like a big profit, but was actually really cheap relative to wholesale prices. But what that's doing is putting enormous pressure on non-franchise dealerships who don't have access to the super cheap inventory. Oh, by the way, that's us. We're a non-franchise dealership.

And so the best example to understand the magnitude of this is CarMax. So if CarMax... In the Great Recession, CarMax briefly saw nearly a 20% decline in comp store sales for a few months. And then it was back up to low double digits. CarMax's comp store sales were down 20% for the whole year in 2022. And they, by the way, still haven't recovered. I think they've clawed half that back.

And so the best example to understand the magnitude of this is CarMax. So if CarMax... In the Great Recession, CarMax briefly saw nearly a 20% decline in comp store sales for a few months. And then it was back up to low double digits. CarMax's comp store sales were down 20% for the whole year in 2022. And they, by the way, still haven't recovered. I think they've clawed half that back.

The reason was in part because cars are more expensive, and interest rates also made cars more expensive. And the other thing was this weird effect where franchise dealerships were being unusually competitive because they had access to this unusual source of cheap supply.

The reason was in part because cars are more expensive, and interest rates also made cars more expensive. And the other thing was this weird effect where franchise dealerships were being unusually competitive because they had access to this unusual source of cheap supply.

So as a starting point, you had the biggest decline since the Great Recession, including the Great Recession, bigger than the Great Recession, in the number of used transactions at an independent dealership, which is a rough place to start. To make matters worse, that was the used vehicle market. Carvana was facing that.

So as a starting point, you had the biggest decline since the Great Recession, including the Great Recession, bigger than the Great Recession, in the number of used transactions at an independent dealership, which is a rough place to start. To make matters worse, that was the used vehicle market. Carvana was facing that.

The second thing that happened, when interest rates rose, the sort of naive thing you would think, which is certainly what I thought, was it wouldn't matter all that much to Carvana. OK, so interest rates will rise. That could affect the overall market a little bit. It will probably affect car prices a bit, so the depreciation curve of a car.

The second thing that happened, when interest rates rose, the sort of naive thing you would think, which is certainly what I thought, was it wouldn't matter all that much to Carvana. OK, so interest rates will rise. That could affect the overall market a little bit. It will probably affect car prices a bit, so the depreciation curve of a car.

But in the end, people's propensity to swap cars shouldn't change that much. And yes, to Carvana's financing business, they just finance spread off of rates. So whether rates are 1 or 4 shouldn't really matter that much. And that's totally correct. And that's exactly where we got to. But there was a catch. You see, what I didn't know.

But in the end, people's propensity to swap cars shouldn't change that much. And yes, to Carvana's financing business, they just finance spread off of rates. So whether rates are 1 or 4 shouldn't really matter that much. And that's totally correct. And that's exactly where we got to. But there was a catch. You see, what I didn't know.

You see, what I didn't know was that when rates would go up, so the auto finance markets made up of a bunch of credit unions and small banks and then a bunch of larger banks who compete and then independents like Carvana who compete. The credit unions price their loans, I mean, it depends on the credit union, but like off of deposit rates or off of Fed funds or off of a, you know, a napkin.

You see, what I didn't know was that when rates would go up, so the auto finance markets made up of a bunch of credit unions and small banks and then a bunch of larger banks who compete and then independents like Carvana who compete. The credit unions price their loans, I mean, it depends on the credit union, but like off of deposit rates or off of Fed funds or off of a, you know, a napkin.