YouSaid · the spoken record

Cliff Sosin

lines on the record: 140
first: 2025-04-29
most recent: 2025-04-29
sittings or episodes: 1
sources: podcast

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“You see, what I didn't know was that when rates would go up. So, the auto finance market's made up of a bunch of credit unions and small banks, and then a bunch of larger banks who compete, and then independents like Carvana, who compete. The credit unions price their loans, I mean, it depends on the credit union, but like off of deposit rates or off of Fed funds or off of a napkin. The two-year went up and fed funds were low and deposit rates were low. And the credit unions, and when I say the two-year, it's worth pointing out, the average duration of a pool of auto loans, including prepayments and defaults, is about two years, so it's a two year is a reasonable proxy for the appropriate kind of risk-free benchmark. So in late 21, as the two-year goes racing up, as people expect Fed funds to rise, all these competitors just didn't raise rates because they didn't. There's no academic reason why they shouldn't have. They just sort of didn't. And then even as Fed funds began to rise, they were super”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“To make matters worse. So that was the used vehicle market. Carvana was facing that. The second thing that happened, when interest rates rose, the sort of naive thing you would think, certainly what I thought, was it wouldn't matter all that much to Carvana, right? Okay, so interest rates will rise. That could affect the overall market a little bit. It will probably affect car prices a bit, so that the depreciation curve of a car. But in the end, people's propensity to sort of swap cars shouldn't change that much. And yes, to carve on his financing business, you know, they just finance a spread off of rates. So whether rates are one or four sort of shouldn't really matter that much. And that's totally correct. And that's exactly where we got to. But there was a hitch. You see what I didn't know?”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“In the Great Recession, Carmax briefly saw nearly a 20% decline in comp store sales for like a few months. And then it was sort of like back up to like low double dinners. Carmax's comp store sales were down 20% for the whole year in 2022. And they, by the way, still haven't recovered. I think they've sort of clawed half that back. The reason was in part because cars are more expensive and interest rates also made cars more expensive. And the other thing was this weird effect where franchise dealerships were being unusually competitive because they had access to this unusual source of cheap supply. So as a starting point, you had the biggest decline since the Great Recession, including the Great Recession, bigger than the Great Recession, in the number of used transactions at an independent dealership, which is a rough place to start.”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“This turns into a big subsidy for franchise dealerships. And those dealerships will then turn around and sell this car would look to them like a big profit, but was actually really cheap relative to wholesale prices. But what that's doing is putting enormous pressure on non-franchised dealerships who don't have access to this super cheap inventory. Oh, by the way, that's us. We're a non-franchise.”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“Or 34 million cars. I think it got as low as 34 annualized, and so it did 36 for the year or something like that. I met in my stats off. But it fell. And this doesn't seem like a huge negative effect, but it was bigger than you might realize because what happened was franchise dealerships, I think you're Ford or Toyota dealership, when a lease vehicle is returned, Unless the customer exercises their buyout, the landing dealership, the one you return it to, gets the car at a price that's been set at the time the lease was created. And so, when car prices rise, if the least returning person, if the dealership has no incentive to tell them that they have the right to buy the car, doesn't know this, which many people haven't read the fide print of their leases. And they return the car. The dealership gets basically a really cheap car.”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“And I haven't really addressed what was going on in the cause of demand problem. So there were, as far as my best understanding is there were three things. Although at the time, I pretty much only sort of knew about two of them. And it's worth pointing out that all of these things, they kind of got worse and worse and worse and worse and worse over time. So you thought you'd identified it. And then like six months later, it was worse. So the first, there were chip shortages during 2020 and 21, which caused manufacturing shortages and caused used car prices to rise. You know, think about the used car business as facilitating people swapping cars. But what happens oftentimes when people are swapping cars is they're upgrading. And so if prices are higher, the cost of upgrading is greater. And that tends to reduce people's propensity to swap cars. As a consequence of that, the used car industry, which is typically about 40 to 42 million cars a year, it was about 39 and change in 2021, felt about 36 million cars.”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“Auto industrial in like, you know, within 10 miles of downtown Boston is difficult, to say the least. It turns out this is the sort of property that Edessa had. And so they basically bought it for the commercial real estate. It came with the auction business, which has a lot of benefits to them as well. and makes all the sense in the world. In retrospect, it's been a huge home run. But, you know, they bought it with all debt. They bought it in February of 22 after, if you read the proxy or whatever, they've been talking for years. It just happened the timing was bad. So what happens is you get to March and they sort of realize that they have a demand problem.”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“Sure. So Edessa is a traditional auction business. So I think a large lot, people bring card dealerships, fleets, they bring cars, and they hold in-person auctions, you drive them down a lane, people bid. The in-person auction business will have a long tail to it, but it's eventually a decaying business over time. But what they got with Edessa is 54, I believe, very large, centrally located properties on which they can build IRCs and store facilities. One of the challenges in their business had been that it turns out they worked out that it is better for them to have large IRCs located relatively close to the customer because fast delivery speeds are good access to labor pools is good and those are more important than kind of the benefits of being far away. But it turns out that build it getting 200 acres zoned for”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“And We were trying to fix it, and it took them a few months to do it, like took them three, six months or whatever to fix this. But the important fact is that it obscured demand, which was falling off a cliff. Underlying demand was falling off a cliff. And it meant that they were still behaving in February. Like demand was as did been in September, even though by that point in retrospect, demand had materially declined. They bought Odessa using tech.”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“Like, how does that truck route continue? Okay, so now you have nine cars that just got stranded somewhere, right? How do you get those cars moving again? And now this happens all the time. But like, if this happens a lot, you overwhelm your ability to clear these things. And now you have cars piling up in basically giant traffic jams throughout their whole system. And then your delivery times that you're promising on your website have to get way extended because you just can't, so your sales come way down, which if you haven't had a system before where you could accidentally buy more cars and you're selling because that's never come up, now suddenly you have a problem where you're buying cars, you're accumulating the system, and you don't have your flows, your logistics system haven't been optimized for this, so the cars are piling up everywhere. You're sort of shuttle, you're shuttling cars. This is what the system looked like. In January of 2022, it was total wreck.”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“Shift in the logistic system, sort of reduce, flip the direction of net flow. This is fine. You just need to build a bunch of things to change it. But this is an example of the sort of thing that was happening all at the same time. A lot of this was covered up in 21 because they were hiring to beat the band. And so when you have excess staffing, it kind of covers up a lot of blemishes. As you get into the end of 21, the first indication that something was wrong was slightly weak November. And then Omicron happened. Their whole system became a disaster. And the reason is that if you think about a car as like a series of events that have to happen one after the other, Let's say you have a truck and the truck goes out 250 miles, switches with a driver, and comes back. Well, if that driver calls in sick,”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“So, the flow of cars was auction to IRC. To customers. Starting in 2019, the company began buying cars in the public, and this has been a wildly successful thing. They make a lot more money doing this. But it turns out that when you do that, you create the potential that if you buy more cars, if you have a node in your system, an IRC, it's possible unless you've thought about this for cars to accumulate. At a node. You can be buying more cars than are leaving that system or more cars be transiting in than are leaving. And if you have finite amounts of parking, this can create congestion. And what interestingly would happen for the first time in 2021 or so was the buying cars process became really successful and they were buying more cars. For the first time, they were buying. And so now suddenly they had this.”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“In 2021, in retrospect, for the first time, the business kind of, in part because of COVID, in part because of the growth, the businesses kind of reach outstripped its grasp from a process maturity perspective. Now, in 2022, there's a software system. And the software system tells you, like, this is how many people you need at these times of the day. And this is where you're going to put the cars. And here are your protocols. You're going to have a starter, like a jumper. You're going to keep it here, right? And like, this is how you do this. And it turns out that this set of protocols locally and globally optimizes better than even the best people, but also make sure that everybody, so it takes the best people, makes them better, and then takes everyone else and makes them almost as good as the best. That software never been written, right? Because this was just not a function that someone had ever bought. Think about how that's in and of itself what I just described is a fairly meaningful project, right? Before 2018, before 2019, I should say, the company bought almost all of its cars off.”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“Cars on the trucks and sending the trucks on their merry way. The sound's simple enough, but it's a lot of trucks. And it's a lot of cars. And there's this question of like, 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's in a 6,000 parking lot is like, it's not like walking down the street and getting a car, right? And all of these things and if someone's done it well and sort of smart and they can kind of figure it out and they can do a pretty decent job. But as you scale, you're putting people in a roles who may not.”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“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 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. Think about it. Like if you're doubling every year, less than half of your employees on average have been with you for 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”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“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, which 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 Edessa, they added a bunch of debt. The capital markets were close to them, all the rest, which was another set of external facts. So let's just, in terms of, let's just 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,”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“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 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...”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“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 not a very scaled 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.”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“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, you know, there's high frequency data that's published. And so recently they've 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, right? So as time goes on, the selection gets better. And so I should make a note here. A traditional card dealership is a monolithic unit, a certain number of cars. Even if you think about like cargoos, it's a certain number of dealerships in your area that collectively have some number of cars. Carvanas pooled national inventory is like there are more cars available on Carvana's website right now than there are for us right now.”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“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 it didn't, you know, 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 percentish and rising. And they'll probably get to the 13, 14-ish percent range based on what they've said. And there's nothing, 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”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“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.”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“In a variety of perspectives that are very wise. So on the one hand, he'll analytically explain to you how as an outside investor you could look at Carmax and try to make a sensible guess at what Carvana sees as its pricey elasticity demand, which is a fairly analytical thing. And then if we were to ask him a question about once upon a time, I sort of said, why don't you adjust your pricing to kind of like compete more aggressively with room? 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, like social effects on his culture.”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“Spend any time dealing with talking to people who've dealt with the Garcias over the 35 years that since the guy made a mistake, which if you actually go through the details of it, it's not obvious he did anything super wrong, but like whatever, he got caught up in stuff. Everyone speaks incredibly highly of them. They've done nothing but behaved totally ethically. If you go through the experience that the company had in 2022 or whatever, there were plenty of opportunities for them to hurt us as third-party shareholders and they haven't. So I mean, Ernie does a great job of just tuning all that nonsense out. As to what he does well, he's”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“Ago, or 40 years ago, it's just, you know, it is wild to me that people then take. Yeah, people take that fact. They're like, therefore this company is a fraud. And it's like, oh my God, this is the guy was a billionaire. What was his plan? Make a few billion more, but send everyone he loves to prison. This makes no sense to me if you just...”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“Asked Ernie, I think, you know, at the risk of inflating his ego, I think that someday people will compare Jeff Bezos, Ernie Garcia, not the other way around. He's extraordinary, right? This business is incredibly difficult, as I've tried to emphasize so many times. There's a reason why they've succeeded where, you know, nobody else in the world has been able to, you know, succeed. And I'll also add that I'm aware, obviously, of his dad's history with the savings and loan crisis. I think he was either a $20 or $50 fine that he paid as like a late 20s something. And this is, by the way, his dad, not him. And, you know, this is 50 years.”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“Time who kind of is. Making what seemed like sound business judgments and giving good reasons for them, and people who aren't. That being said, the really good way to do it I find is I talk to former employees and I'm certainly using that to learn about the company, learn about how it works, how do you buy things, how do you sell things, blah, blah, blah. But I'm also just assessing them. And a company which spits off people who work there for 10 years, left on good terms, who you just like, I don't get it. Like this guy's an idiot. That says something about the caliber of people in the organization and the human capital exhaust is kind of indicative of what's inside. And conversely, when you find yourself, we talk to, you know, go talk to 10 former employees who spend at least five years of capital one, they'll blow your mind. That tells you something about what's going on in Capital One. And so I find that that's really the best approach.”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“There are businesses where there's a new problem to solve every six to 12 months. And it throws up a never-ending series of hard problems. You know, so you want businesses, so a contained one would be one where set it, forget it's the wrong term, but there's like an obvious, like, would you like to sell more cars? Yes, yes, okay, so now going back to management. So I don't necessarily think I'm going to ever get to a point where I'm like, this team is great. I don't care that this is a business that will throw up, perpetually throw up bad hard problems. I'll buy it anyway. But I do think that I've now come to understand that I can judge it and that management matters a lot. So it gets weighted into my thinking in a way it wasn't before. For what it's worth, I'll add to you how I judge it. Meeting with a management team is great. It turns out all the people who become CEOs figured out how to, you know, I learned a little bit. And I certainly listened to them talk in public, and you can definitely pick up over.”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“And I'd ranked them, the teams that I was involved with. That ranking would have perfectly predicted how things did relative to my expectations at the time. So what I learned there was two things. One, it matters. I knew it mattered. But more importantly, I think I can judge it. And so now I fall into the, obviously I care predominantly about the business and the price. Like that is in the end the right thing. A great team with a terrible business is going to be a challenge. It's going to be a slog. There's just no two ways about it. The way, just go back to your contained versus uncontained point, that's another idea.”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“If you'd asked me five years ago, I would have put myself firmly in the let's focus on the business. I don't think I bring much advantage to understanding management. It's been an exciting five years. And in that time, one of the things that's come out is the businesses where if you'd asked me, okay, Cliff, I get it, you don't care. But like rank them anyway.”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“Car's second largest purchase of your life. And so you can imagine how that is also really challenging. And so in the sort of fulfillment sense of it, I think used vehicles are probably the hardest thing to build. But the analogy to Amazon actually, I think, is apt.”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“Imagine if you had to start Amazon, but you couldn't just call the manufacturer and get books. You had to manufacture them. And imagine if you couldn't just call FedEx and have them ship the books. You had to build basically FedEx. And imagine if you couldn't just accept MasterCard, right? You had to build a financing platform. And Lord knows you can't just sell the person the book. You have to do title and registration, right? And all that. And, you know, with books, the stakes really just aren't that high. And so people are willing to try it. And if it doesn't go so well, you know, they're disappointed, but it's okay.”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“I actually love the comparison to Amazon, but there's a famous video I saw once I'm not famous, but I love it where Jeff Bezos is describing why books is the first best place for an internet business. And he talks about how the selection matters so much, and then he talks about how you can get the books and you can ship the books. And you can pay for the people who can pay for the books. Well, imagine if I actually think that from a consumer's perspective used cars is just as great as books. The selection space is infinite, selection matters an enormous amount. Also, what I described of Carvana system is a lower cost operate system than the traditional dealership system. It's a better experience. But the thing about books is it's really easy to do.”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“Subject to economic conditions. The other thing about this business is if you think about a car transaction, it's a whole series of things that have to go right. And if you get any one of them wrong, you're going to lose money on the transaction and your customers are going to be miserable. And this is economies of scope, right? So this is the idea that you have to put this whole portfolio of things together and you have to get them all right and you have to get them all right every time. It's this combination of things. And if in anything I've said sounds easy, it's because I haven't described it right. It's so hard. And so that's why everyone who's tried to build this business besides Carvana has failed. And that's why it's taken Carvana, you know, over 10 years and 10 billion dollars to get where it is. And outside the US, there were other people trying to copy Carvana in other markets. And, you know, some of them are doing okay. A lot of them have failed, but none of them are doing really great. And just the bottom line is that it is so hard.”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“Consumers, when they buy a car, it's an act of sight unseen in the air, it's an act of trust. We can talk about how Carvana grows. And it was one of the things that kind of went wrong in 2022. But getting Carvana is able to get people to buy cars because there's been an enormous amount of word of mouth built up over many years of delivering great experiences. Know you can't buy that, you have to build it up over time. That's trust on the buying side. There's also trust on the selling side, all the less. There's also trust in the financing business, right? You make these loans, then you sell them. And the people who buy these loans have to trust that you're making these loans to spec and that the loans are going to perform kind of as advertised.”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“To do the cleaning and the oil changes and the tire changes, and you can have advanced mechanics do just like a very narrow subset of stuff. And you can have people at like specialized stations where this is what they're doing. And so they can be more efficient. Now, to do that, though, you have to efficiently route the cars through the system and all the rest. Also, the dealership is in like an expensive place. And so you have less overhead. So these are just examples of place, but there's economies of scale to doing that, as well as enormous process power, like economies of scale. Underwriting loans is obviously an endeavor where you learn the way to do this over time. You connect all these data sources. You learn how to predict defaults. You then get data over years that you cycle us back into it. Title and registration, like there's software that's built to run all this. So this is like, there's enormous economies of scale and skill in terms of being able to do all these things. And then I would be really remiss if I didn't mention trust.”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“Logistics, the cost of running a logistics system, you can think about moving these trucks as like a fixed cost. And if you want to provide complete connectivity and move cars quickly, it turns out conversion speeds matter a lot. And by the way, when you think about the inventory nearer to customers increases conversion because you can get to them faster. Then you can think about these IRCs. These are very large facilities. It turns out that run well, you can recondition cars for a lot less money and time because cars are depreciating assets if you have a big facility. So like if I have a traditional dealership, the car comes in and like one guy does all the one guy or gal does all the repairs. But the problem is that person isn't necessarily the right level of like they're overqualified for a lot of the things they're going to do on the car. And they have to change tasks. That slows you down. If you're at Carvana, you can have people who are very entry level.”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“And there's, if you think about all the makes models, Trims, years of cars, as well as mileage, like the selection space is massive. And Carvana's coverage, even at its size, is still relatively small. And so as a consequence, conversions go up as selection goes up. And so selection is like big economies scale.”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“For every car in real time, and then they're taking that and they're making it available to you through this cool widget. To this day, as far as I'm aware, no one's replicated this capability in order to do it. You need to be vertically integrated into prime lending, subprime lending. It just turns out that no one else is, and it's also very hard to get into these business as well. There's title and registration. Obviously, you've got customer service. The thing about this business is you have to remember that this is all great, but things go wrong. Then you have to deal with all the many, many corner cases that can come up. If you want to entertain yourself, like go read the one-star reviews at Carvana. It's like, well, I was moving and I ordered the car when I lived in Florida, but I needed it delivered to North Carolina. And, you know, then there was a hurricane. And as a consequence, it was late. But then there was a problem with a title. And you're like, I was like, oh my God. That's kind of how the system works. Now in that whole system, like let's identify some economies of like scale, inventory. Turns out selection matters. Matters a lot.”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“On the website. Sometime later, it sells. They take the car, nine car hauler to the hub. Now, you'll see this is beautifully balanced. The cars are coming back from the hub. They're also going out to the hub, right? So the car will go from the IRC it's at, the IRC closest to the customer along basically the rails, and then it will go from the IRC to the hub, and then from the hub, it'll be delivered on the single car hauler or picked up by the consumer. That's the physical system. There's also finance. If you go on their site and you enter information, instead of searching by price, you can search every car by payment. So you can adjust the number of the months, year down payment, and you can see each payment for each car to the penny based on your individual credit score. And this isn't an estimate. This is exactly what it is. In order to do this, Carvana has a fully vertegrated financing stack. So they're essentially underwriting you for every loan combination.”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“But running a hub and spoke logistics network like this one, it's hard, right? Like logistic building a logistic system requires a lot of density, requires a lot of scale. There's also a lot of technology to it, recruiting drivers. There's a lot. But that's the next piece of the system. With that, the come to an IRC. And at that IRC, it'll get reconditioned. And reconditioning a car in an IRC is a challenging thing. Which dents do you repair? How do you repair it? And you can think about a reconditioning center as a bunch of different stations that do a bunch of different work that's relatively homogenous. So changing tires, changing oil, inspecting, paintless tent repair, painting, whatever the thing may be. A car starts out with a mix of work that has to be done to it. That has to be ascertained in an inspection, and then the car is going to be routed through the IRC to different stations and then come out and be imaged and put”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“On nine car haulers. And what that does is it's built a hub and spoke logistic system. It's like FedEx or something. The sort of insight there, which Ernie had, was if you wanted, historically, if you wanted to ship cars, it was very slow and expensive. And the reason is that the amount of car shipping happening between Fairfield, Connecticut, and Alabama and someplace in Alabama.”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“Of larger inspection reconditioning centers. These are, I think, very big facilities that can recondition up to 40,000 cars a year with 6,000, 7,000, 8,000 cars in the parking lot, which is a lot of cars. Then there's local points of presence. They call hubs. And those hubs would be, there's one in Fairfield, Connecticut, small facilities that originally were sort of purely non-consumer facing. Now they've modified them to be somewhat consumer facing, but not very big. And so the cars at the hub, the hub is connected to the IRC. Let's say you have the car picked up. One of their nifty little single haulers will come out. They'll pick the car up. They'll bring it back to the hub. From there, that hub is connected to the IRC via logistics on a nine-car hauler. Those IRCs are then connected to each other via logistics.”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“You can range that someone pick up the car, or you can for a small fee, or you can drop it off at one of their hubs and get your money and the transaction takes no time. Everyone gives them five stars. Doing that's hard, right? Like what I just said, it sounds so simple, but actually being able to take a license plate to map it to a VIN, to map all the features of the cars, VIN, to then be able to figure out what you think you're going to be able to sell that car for, how much it's going to cost to ship it, how much it's going to cost to recondition it, and be able to work out from all that. Therefore, what you think you're going to be able to make on the car and then to figure out what you want to offer in order to maximize the profits from this lead, you know, and to do it all like, you know, for every car on the road, like all the time across the country, right? It's like wild. Then Carvana owns a real estate footprint, that real estate footprint can...”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“Of scope, and by being great at all of these things, it was going to produce this very, it could produce this very big mode. What I didn't believe necessarily until I saw that video was that anyone would buy a car on the internet because that was just common wisdom and at the time this is a while ago. This is before it was obvious, but they just had some cohort curves. And I was like, well, people clearly love this. And so at that point, it was kind of like love at first sight. Maybe to sort of explain a bit about the business and why I think it's so the things I identified turned into the tremendous advantages it has today and are kind of the most. So let me just spend a few minutes. So at the core, the way the Carvana system works, it will follow a car. Carvana buy cars mostly from the public. You take a picture of your license plate and you enter a few things and it's like four questions and they'll give you a price. You can exercise it or not. You have seven days. Once you do that,”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“auto lending business. I'd been involved in credit acceptance, which is a one on auto lender. I'd also looked, obviously, who hasn't studied Amazon and read the Everything Store. And I'd also studied logistics companies. And I'd also looked at manufacturing companies and all the rest and software companies. And so it turns out that Carvana is all of these things. As they were explaining the business, it was clear to me that the economic advantages that allow someone to build a successful distribution company or a successful retailer or a successful lender, all of them have economies of scale, scale, and trust. And Carvana had, what Carvana was building was going to involve all of the advantages from all of these different businesses that they're effectively in at the same time. And this is California.”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“I first encountered Carvana in 2018, and they used to have a video up on their site. They might still. That kind of describes the business. It was a pre-IPO video, one of these things you put up, or whatever. And I remember sort of watching that video, basically realizing this is an amazing business that's going to do great. And it's incredibly underpriced. And I'm going to own a lot of this, provided everything they just said is true. Obviously, that's not how reality works in the sense that the reason why I felt like that was years and years and years of context. And so to go farther back over the prior years for, you know, like when you're in my business, you're waiting for your stocks to go up. In the meantime, you're sort of looking at other things. And so I had spent time studying Carmax and I had spent time studying car dealerships. So I was sort of reasonably fluent in kind of how the auto retailing business works. I'd also been involved in the”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“Into the right. The business grew every year. Its margins improved every year. And it grew really fast. It was doubling often every year, slowed a little bit, but that was kind of roughly the pace. If you'd spoken to me in 2021, I roughly would have expected a continuation of that trend. And of course, what happened was the business slowed. It lost tons of money. The stock went down 99%, which is more than bad. And then to ruin the story, which I think most people realize that it turns out that was all a mistake. Company's fine. It's right back. It's a little behind where I sort of thought it would be, but it's actually more profitable and it's back on track. And the stock's mostly recovered and all the rest. So that's kind of the broad arc.”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“Sure. And part of the reason I actually, almost all the reason I said yes, more than all the reason. I said yes to coming on is that it has been such a wild episode in business history. And I sort of worried that if I didn't try to memorialize it to some extent, that it would get forgotten. It is such an interesting story. I think it deserves to be memorialized. I also think it's sort of wildly misunderstood. In terms of like what happened to Carvana in 2022 and 2023 and beyond. So yeah, I guess maybe a place to start just to level set for people who don't know as well. Carvana is an online retailer of used cars. It was founded in 2013 by Ernie Garcia, who you've had on. And if you were to broadly describe the company's history from 2013 to 2021, it was a”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“Reason, and that can, you know, and if it's really broad, it can have some effect. But I think mostly what happens is people just kind of get it's more of a panic. People get scared, like, oh no, this company is going to get shut down because this group of people view it as terrible and they're going to try to kill it.”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source
“You know, it's reasonable as an investor to look to areas where that are viewed as a sort of bad but are not illegal. And for what it's worth when I've dug into most things like this, I've always discovered that these things are far more complicated than the sort of naive coal is bad. Okay, well, sure, but electricity is pretty good. So it's complicated. I'll add one other thing, which is this idea that I think you mentioned, which is funds that can't invest or whatever, there's an implicit point that you're set of saying, which is a sort of elasticity of price concept. And I'm not that, I think the literature on this kind of agrees with me, but I don't think that groups of investors deciding to forego certain asset classes like oil companies necessarily cause them to be super cheap. I do think that there can be sort of more broad-based things where people kind of don't want to own something for some reason.”
2025-04-29 · Invest Like the Best · Cliff Sosin - Investing in Carvana - [Invest Like the Best, EP.421] · IDENTIFIED FROM THE TRANSCRIPT · source