Can You Actually Live Without a Car?

Key Takeaways:

• While used car and truck prices appear to be leveling off, they’re still up more than 40 percent year over year. 
• It’s high time to sell your car, however not everyone’s in the position to do so – financially or logistically.
• If you might sell your car and have an affinity for beaten down stocks, Carvana – company and stock – could kill two birds with one stone.

According to the Bureau of Labor Statistics, the used car and truck index decreased 0.2 percent in February. However, over the last year, the index skyrocketed by 41.2 percent alongside a 12.4 percent uptick in the new vehicle index. 

While things might be leveling off, used cars continue to fetch massive premiums. 

Kelly Blue Book puts the average sale price of a used car at $27,608 in February. That’s down just $25 from January. 

As it turns out, I’m not going to sell my car. 

I live in the core of urban Los Angeles, but it’s still not feasible to be car-free, particularly if I take comfort, convenience, and my time into account. 

This said, if I lived in a city or suburban neighborhood with accessible and viable alternative modes of transportation, I’d sell my car. 

You have to weigh the utility of having additional money in your life against the practicality of having one less or no car in your life. 

If you prioritize a hefty emergency fund, something around or meaningfully more than $5,000 could change the game for you.

If you’re cash secure, you might consider the proceeds from selling your car found money. 

If You Can Make It Work…

There’s been a seismic shift in the way people work since the start of the pandemic. It’s estimated that more than a quarter of all Americans work remotely. By 2025, that’s expected to drop to 22%, but still hit a whopping 36.2 million people.

If you’re one of those people, you may be able to sell your car or even downsize if you can logistically reach everything in a small radius from your home.

Here’s the thing. What you make from selling that used car is a one-time inflationary benefit. You can’t repeat the process over and over as a way to combat ever increasing prices, which aren’t limited to just used cars anymore.

That’s why everyday folks are turning to stock market investing as a way to offset these inflationary pressures.

And what better way to take advantage of that than marrying two ideas together?

Dealership Invest

Speaking of investments, Carvana is a name worth a glance. 

From a 52-week high of $376.83, the stock now trades closer to $150. 

Thanks to the global chip shortage, we’re seeing limited supply of new vehicles, which has led to this exponential increase in used car prices. 

On one hand, this is good for Carvana. The company continues to increase sales – units and revenue – at an impressive pace. 

Source: Carvana Q4, 2021, Shareholder Letter

However, costs continue to rise as Carvana stocks inventory by purchasing cars from people like you and me. 

So, despite the sales increases, Carvana’s net loss increased from $154 million to $182 million between Q4 2020 and Q4 2021. Carvana also continues to burn cash and take on debt to expand and fund its aggressive growth. 

Therefore, there’s likely more pain on the way. 

However, while Carvana has guided to a difficult Q1, it expects to continue to keep GPU (gross profit per unit) over $4,000 and stay around breakeven EBITDA margin. 

One Caveat…

There’s a decline in used car prices coming, if not an outright crash, so this would obviously hit profits, given how much money Carvana is shelling out to buy cars today that it sells tomorrow. 

As the chip shortage gets straightened out, here’s KPMG’s take on the situation:

The millions of consumers and businesses that are forced to buy used-cars today, will go back to buying new ones. Used-car demand would normalize and the relationship to new-car prices would be restored. That would imply a drop in used-car prices of about 30 percent below where they are today. However, the fall could be somewhat less if inflation persists. 

Without a crystal ball, you can say somewhat safely that the situation, particularly as it pertains to inflation and the supply chain, will not change overnight. However, in the grand scheme of things, we’re living through a moment in time. 

If you’re a long-term investor (as in, you have a time horizon of greater than a few years and preferably more than 5-to-10 years) and you believe in Carvana’s model, the stock could be one you collect on weakness and reap rewards from once the dust eventually settles. 

The Bottom Line: Multiple sides exist to most stories. 

In this case, if we were to boil it down to two, you have people who let the world happen to them and people who happen to the world.

In the case of inflation and other significant economic shocks, folks in the latter group look for ways to benefit from these events from personal finance and investing standpoints. 

In addition to Carvana, consider two of the top stocks in the space. Like Carvana, CarMax (KMX) is beaten down, trading just under $100 after hitting a 52-week high of $155.98. 

AutoNation (AN) has fared better. While off from its 52-week high of $133.48, the stock is still up 25 percent over the last year and relatively flat over the last month, trading in the $110-$120 range.

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