Carvana bought an auction house for billions to develop used cars

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Carvana just got a whole lot bigger. The online used-car market just bought an entire auction house for $2.2 billion in cash, according to an announcement on the Company Website.

They bought physical wholesale auction subsidiary ADESA US from KAR Global. It is intended to give Carvana another source of income. On top of that, it gives the company a physical location to help with sales in this insane automotive market as well as the exclusive rights to ADESA.com.

The agreement “significantly improves” the reach of Carvana’s logistics network, Automotive News reports. Carvana announced a net loss of $182 million in the fourth quarter of 2021.

Currently, Carvana buyers can pick up their vehicles from any of its 30 car vending machines or have the cars delivered directly to their doorstep. From the report:

“We will go from currently having inspection centers within 200 miles of 56% of the US population to finally being within 200 miles of 94% of the US population,” said Ernie Garcia, CEO of Carvana. . “Demonstrating the quality of these locations, we will go from a 50 mile radius of 16% of the US population to a 50 mile radius of 58% of the population.”

He added that a move like this will improve the customer experience by reducing shipping times. Carvana estimates that this acquisition will increase its production capacity by approximately 2 million cars per year.

The company opened its 15th inspection and reconditioning center earlier this year, and according to Automotive News, this brought total production capacity to 880,000 vehicles.

This really puts into perspective how important the purchase of ADESA is for Carvana. This more than doubles their current capacity.

They use these facilities to prepare the cars they buy, that is, inspecting and reconditioning them.

Garcia says the company plans to open six more centers this year alone. Five of them were already scheduled, and now the sixth could change with ADESA news.

The company says the ADESA name will remain for its wholesale auction business.

“ADESA has earned its place as a respected brand in our industry thanks to its dedicated team and robust operations. We have long admired ADESA, having come to appreciate their approach as a customer over many years,” Garcia said in a statement. “We look forward to joining forces and continuing to deliver the best customer offering for retail and wholesale customers.”

According to Tech Crunch, Carvana is financing the purchase of ADESA using part of a $3.275 billion loan secured from JPMorgan Chase Bank NA and Citi. The remaining $1 billion would be used to improve ADESA sites across the country.

John Hammer — which is a great name for the president of an auction house – comes to Carvana when the deal closes in the second quarter of this year.