Cliff Sosin
speaker
323 appearances
1 recordings
1 series
first heard Apr 2025
last heard Apr 2025
Cliff Sosin’s voice in public audio — every appearance, attributed to the second.
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And then, you know, if we were to ask him a question about, you know, once upon a time, I sort of said, why don't you adjust your pricing to kind of like compete more aggressively with Vroom? And he basically sort of described how
if he made competing with Vroom something that mattered, then suddenly, instead of focusing on the customer, everyone in the organization would be sort of, when Vroom wins, we lose. When Vroom loses, we win. We're not focusing on the customer anymore. And he was thinking about the second and third order social effects on his culture. And he's very deliberate about things like that. All right.
It's worth pointing out where the company is today because through most of the company's history, it was obvious that Carvana could grow. Margins, however, were improving, but there was always debate around the economics of the business. And I said earlier that this is a more efficient system. And for a long time, that was a matter of conjecture.
I could sort of work out unit economics and how much does it cost to ship a car a mile and blah, blah, blah. But we couldn't see it on the press release. As of now... the company's margins, EBITDA margins, and they have very little stock-based comp and relatively little capex, are 10.5%-ish and rising. And they'll probably get to the 13, 14-ish percent range based on what they've said.
And there's no reason to doubt it. And the average car dealership's about four and a half. So they make of the order of two and a half, three acts, the margins of their competitors. And we track every car that they sell, and we compare it to similar cars sold by CarMax. We also compare it to other market indices. And we believe that they sell cars of the order of $500, $600 cheaper doing that.
Now, in fairness, they charge a bit more on financing, but it's still cheaper overall. And they offer, obviously, a far superior experience, far superior selection. And they're growing. There's high-frequency data that's published. And so recently, they've been sort of growing 45% to 50% year over year.
And so the idea that they're putting all of these things together, at this point, you no longer need to speculate about the... power of the model. It's also a model that gets better as it gets bigger. So as time goes on, the selection gets better. And so I should make a note here. A traditional car dealership is a monolithic unit, a certain number of cars.
Even if you think about like CarGurus, it's a certain number of dealerships in your area that collectively have some number of cars. Carvana's pooled national inventory There are more cars available on Carvana's website right now than there are for us right now sitting here in the entire state of Connecticut from all the other dealerships.
And that's only going to improve brand, also process efficiency. They still have a long ways to go in terms of... Fixed cost leverage is a long ways to go. So this is a business that gets better as it gets bigger, and it's already so much better than its rivals. And its rivals, of course, it's very challenging to meaningfully update the processes in a car dealership.
It's just not a very skilled organization. How much technology can they really bring to pair? All the rest. I thought I'd just finish that story. The company grows. The company had enormous amounts of demand in 2021. Just put a car on the site, car disappeared. And they were trying to overcome the challenges of the pandemic, to build supply, to grow tremendously into 2022.
They sold something on the order of 425,000 cars in 2021. They had ambitions of doubling or more in 2022. To do that over the course of all 21, they were hiring and hiring. As it would work out, demand collapsed. And they discovered all manner of operational problems that they were having. And it made 2022 really challenging.
When you tell a story like this, you have the benefit of everything you learned during the whole period and everything you learned after and all the time to synthesize it and sit calmly later on and figure it all out. All of this happened in a cloud of dust with incomplete data. So it's all going to sound so neat and put together and understood.
And there were definitely pieces of this that I had nailed and there were pieces of it that I learned later. But I just want to, you know, this was real life. What happened was, at least my understanding of it now, was a few things. One is they had a bunch of latent operational issues we can walk through. Another was that
There was just a very unusual used vehicle market, which led to the used vehicle market being significantly smaller than normal in 22. And it still hasn't fully recovered. It's only partially recovered. In particular, it was bad for independence. And we'll talk about that. Another was the vehicle financing market did totally strange things, which made life absolutely miserable for them.
And then, of course, because things had to be the way they were, they bought Odessa. They added a bunch of debt. The capital markets were close to them, all the rest, which is another set of external facts. So let's just in terms of let's do internal operational stuff. It's interesting. The company had been growing year after year. Circa 100%.
And when you're doing something as complicated as what Carvana is doing and growing as fast as Carvana is growing, things were always going wrong. And I would always hear kind of some horror story or another out of some part of the organization. But, you know, you looked at the overall star ratings. They had great reviews. It was like, well, you know, it's a big organization.
They're growing really fast. To think about it, like if you're doubling every year, less than half of your employees on average have been with you for like less than a year, right? This is wild. They also had deliberately prioritized speed and growth over necessarily slowing down and, like, really hardening their processes.
And the reason for this was that they viewed, you know, this is a scale business, and there was risk that if they weren't first to scale, that they would be disadvantaged over time. And at the time, their competitors hadn't failed yet. They grew a lot of their operations were more mediated by, like, I'd call it tribal knowledge and culture. And so, silly example, but a real one.
There's a role at the IRC inspection and reconditioning center for receiving trucks, taking the cars off the trucks, putting different cars on the trucks and sending the trucks on their merry way. This sounds simple enough, but it's a lot of trucks and it's a lot of cars. And there's this question of where do you put the cars and what order do you put them on the trucks in?
And by the way, if one of them doesn't start, what do you do? And how do you staff this operation? Because it turns out fetching a car in a 6,000 car parking lot, it's not like walking down the street and getting a car, right? And all of these...
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