Carvana goes digital and acquires auction house Adesa for $2.2 billion

carvana (CVNA) – Get the Class A report from Carvana Co. is proactive in its fight against rising used car prices and increased competition amid a global shortage of semiconductors that continues to plague the automotive industry.

Used vehicle sales totaled 40.9 million units in 2021, according to Cox Automotive, an all-time record this represented a 10% year-over-year growth.

The increase came despite prices surging in 2021, taking the Manheim Used Vehicle Value Index to a record high of 236.2 in December, implying a 46.6% jump from a year to year.

Many consumers turned to the used car market last year due to supply chain issues and declining new vehicle production. Once in the market, they found many options online to purchase their next vehicle.

Carvana operates in a space with CarMax (KMX) – Get the report from CarMax, Inc.Sonic Automotive (SAH) – Get the Class A report from Sonic Automotive, Inc. and AutoNation (A) – Get the report from AutoNation, Inc., and these names are just the company’s publicly traded competitors. vroom (VRM) – Get the report from Vroom, Inc. even has similar business models to Carvana.

But Carvana has a plan to separate themselves from the pack and that plan looks like e-commerce giant Amazon (AMZN) – Get the report from Amazon.com, Inc. made to diversify its activity by a physical presence.

Carvana to acquire Adesa US for growth

Carvana has signed a definitive agreement to acquire Adesa’s physical auction business in the United States from KAR Global (BECAUSE) – Get the report from KAR Auction Services, Inc. for $2.2 billion in cash.

Adesa US is the second largest wholesale vehicle auction provider in the United States with 56 locations and over 4,500 employees. In 2021, the company facilitated over one million transactions.

“Along with Carvana’s existing operations, Adesa US’ nationwide infrastructure network and robust, highly profitable business will accelerate Carvana’s progress to become the largest and most profitable automotive retailer,” said Carvana CEO. , Ernie Garcia, in a statement.

“Over time, we will leverage our combined infrastructure and complementary expertise to deliver even better selection, better value and faster delivery times to our retail customers while raising the bar and delivering more access and better experiences for our wholesale customers.”

When the deal closes, nearly 80% of the US population will live within 100 miles of an existing Adesa US or Carvana inspection and reconditioning facility. This means they will have access to more vehicles with faster delivery times.

“We look forward to bringing our innovative teams together and combining the power of our physical auction and retail capabilities to better serve buyers, sellers and consumers in the automotive industry,” said the president of ADESA, John Hammer.

The used car market looks to the future

Some of the supply chain issues that plagued the new car market in 2021 have persisted into 2022, leading Cox Automotive to forecast a strong used vehicle market this year, with particularly strong momentum throughout. of the first semester.

Cox predicts used vehicle sales in the United States will total 39.3 million for 2022, including 22.1 million retail purchases.

Although this is down slightly from 2022 levels, it is still ahead of 2020 numbers and takes into account microchip issues which are expected to persist for at least the first half of the year. .

Carvana follows Amazon out of cyberspace and into the physical world with its new purchase. He also hopes the appetite for used vehicles continues to grow, justifying his $2.2 billion purchase.