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Shorting Carvana
Carvana is a second hand car buyer and seller whose business source of profit is selling car loans for ABS. Its loan book consists of sub prime auto loans that are based on questionable loan quality. Its major loan provider Ally is having difficulty financing all the loans and many of them going delinquite. Carvana is a fradulent business that will unravel in due course.
Links and analysis
Below are some links to various articles and data.
Its very richly valued for the type of business it is. Subprime auto loans are defaulting highest on record. Second hand car prices are going down. Huge amount of insider selling. Very good summary of everything going wrong in that industry.
CarMax, the biggest seller of used cars, sales and profit plunged in the latest quarter, sending stock down 20%. Tarriffs are having an adverse effect on its business. “The consumer has been distressed for a little while. I think there’s some angst”. Banks, the trustee and other parties have placed particular scrutiny on vehicle identification numbers, or VINs, tied to Tricolor’s loans. Some have worried they may have been fabricated or duplicated, raising concerns the company used them to disguise bad loans or inflate the value of its portfolio.
Bankrupt subprime auto lender Tricolor Holdings appears to have been a “pervasive fraud” of “extraordinary proportion”. Roughly 40% out of some 70,000 active Tricolor loans — which were used as collateral for bank warehouse lines and asset-backed securitizations — contained attributes identical to those of at least one other loan. Wall Street banks and ABS holders have been scrambling for any clarity into the finances of the auto lender, which had tapped them for more than $2 billion over the past couple of years
First Brands Group has filed for bankruptcy protection while disclosing more than $10bn in total liabilities, marking one of the most spectacular collapses in private debt markets in recent years.
Although it is priced as a growth stock, the business is cyclical.” He highlighted a stark example: in mid-2023, a slight economic dip led to a 30% year-over-year drop in Carvana’s (CVNA) core operations. While investors focus on the company’s gross profit margins, Chanos claims these figures are propped up by aggressive accounting practices that overstate profitability.