Yahoo Finance

The headlines for online-car buying platform Carvana (CVNA) haven’t been good recently. And whether the company will remain a public entity is now in doubt.

In fact, Yahoo Finance dubbed Carvana "Worst Company of the Year" after polling more than 5,000 readers on their suggestions.

Despite a stock down 98% this year, concerns over its debt load, and whether management has the know-how to right the business, it seems one thing may have some staying power — the trend of buying used cars online.

What online platforms like Carvana, Vroom (VRM), and even CarMax (KMX) offer is the ability to avoid the hassle of going to dealership, negotiating with a salesperson, and spending hours at a sales office waiting for paperwork and financing to go through.

From a business standpoint, however, the online car buying business can be very expensive — and labor intensive. The process of locating and buying a used car, reconditioning it, merchandising it on the website, delivering it, and then processing all the paperwork, is a big expense.

And this is where Carvana has gotten into a lot of trouble. Carvana reportedly has delivered cars to buyers in less than ideal shape, which then required expensive remediation.

Ken Stromsland, managing director of high-end auto detailer The Detail Doctor in Shrewsbury, New Jersey, told Yahoo Finance that he and his clients have first-hand experience with such issues.

“Many of the appointments [we’ve had] were customers who took delivery and the condition of the vehicle was not as described so Carvana let the customer get an estimate (from us) to do whatever scratch removal or detailing that it needed,” Stromsland says. “Carvana didn’t blink and paid for whatever was needed to make the customer happy; while I think that’s a great customer satisfaction thing to do, it’s expensive for Carvana.”

The Detail Doctor also has a dealer license, and in the process of acquiring used cars to sell, saw how Carvana was vacuuming up the supply of used cars, and expensively at that.

“As we were trying to buy cars, and looked at Galves [used car data provider], and Manheim [used car auction house] for values, we had customers telling us they would check Carvana to buy their car, and Carvana was paying ridiculously high [prices] for used cars,” Stromsland said. “We lost several deals because Carvana was paying super high [prices] for cars; I’m talking $5K-$10K on a car, not a few hundred or a grand here or there.”

Carvana was buying cars hand over fist during the pandemic to meet rising demand from buyers who wanted to travel exclusively by car and were interested in buying cars when new car supply was dwindling due to parts shortages and COVID-related factory shutdowns.