Carvana Cooks His Books, Hindenburg Research Claims

Carvana can be a house of cards. This is according to an economic survey by the advertising company Hindenburg Research (not a good sign from a company known as a disaster), which published a report on Thursday which accuses the online used car dealer of “disruptive accounting” over the unsustainable loans it is using to meet short-term expectations while a group of male owners pays.

The report, titled “Carvana: An Ancient Father-Son Reader” He says that Carvana’s miraculous transformation over the past two years, which has seen the company’s stock. about 10x in 2023 and went up another 300% in 2024 later looking down on bankruptcy in 2022it is nothing but “stuttering.” Hindenburg’s research says that when the share price has soared, Carvana’s CEO’s father has pulled out more than $1.4 billion.

The core of the alleged scheme seems to be self-made, but in order to understand the alleged shadow, it is necessary to first understand how the business works.

When people buy a car from Carvana, the loan comes from the seller, but they sell the loan to other companies. His main buyer for those auto loans was Ally Financial, but the bank also pulled out of the deal. This may be in part because Carvana’s claims on the loans have already been questioned. Hindenburg says Wells Fargo-a company that has mastered the art of fraud finances actions– terminated the contract with Carvana in 2019 because “Their writings were not what we were comfortable with.”

What exactly is going on with Carvana’s writing? Basically, a rubber stamp, according to the report. A former Carvana executive told Hindenberg, “We accepted 100% of the applicants we didn’t reject for emotional reasons.” About half of all of Carvana’s loans are subprime, according to Hindenburg, and 80% of them are “deep subprime,” which is the riskiest rating available. Even the company’s so-called “prime” borrowers have a 60-day delinquency rate four times higher than the industry average.

All that to say, Carvana car loans are a big deal. However, the company has found a new buyer despite Ally and others’ objections. According to Hindenburg’s investigation, Carvana sold $800 million in auto loans to what the company called “an unrelated third party.” The truth is, Hindenburg doesn’t think that this buyer is “inconsistent.” The company believes Carvana is selling its debt to affiliates of DriveTime, a private car dealership owned by Ernest Garcia II – the father of Carvana CEO Ernie Garcia III and the car dealership’s largest shareholder.

Hindenburg believes that the lender is increasing the debt to creditors to make it look like the company’s many debts are in good shape when they can be seen as delinquent and dangerous.

So in the Hindenburg dig, it looks like Carvana may have made his remarkable transition by simply accepting every loan request that came across his desk. These juiced stocks and investors agreed with the company, pushing its value to a higher level. Meanwhile, Ernest Garcia II began to sell off his assets, generating more than a billion dollars as the wallets were emptied.

“Overall, we think Mr. Garcia will leave the owners empty-handed,” Hindenburg’s report concludes. “Every time Carvana was successful, it would have raised more capital and eliminated its risk. Instead, the company pushed its creditors and engaged in an accounting game while its CEO’s father lost billions.”