Carvana, an online used car dealership company, has been performing well on the stock market, with shares increasing by nearly 50-fold since late 2022. However, Hindenburg Research, a short seller known for targeting high-flying companies, recently accused Carvana of engaging in questionable accounting practices. The allegations include claims of related-party accounting games involving DriveTime Automotive, owned by Carvana’s founders, Ernest Garcia II and Ernest Garcia III. Carvana has faced similar allegations in the past and has vehemently denied them, but Hindenburg’s latest claims allege that the company is hiding dealings with Cerberus Capital Management, a private equity firm.
Hindenburg’s report claims that Carvana sold $800 million of auto loan receivables to an undisclosed third party, which they believe is controlled by Cerberus. The report also highlights the political connections between Carvana’s director Dan Quayle and Cerberus, suggesting that more transparency is needed regarding these transactions. Carvana has refuted these claims, stating that the mystery buyer is not a related party and accusing Hindenburg of providing misleading and inaccurate information.
The allegations of dealings with Cerberus bring attention to the political influence of Stephen Feinberg, the founder of Cerberus, who has close ties to former President Donald Trump. Carvana has been under investigation by the U.S. Securities and Exchange Commission since 2020, further adding to the controversy surrounding the company. Despite these controversies, Carvana has continued to be successful, with Garcia II selling billions of dollars worth of Carvana stock since 2020.
While Carvana has faced legal disputes in the past, including lawsuits related to financial filings and stock transactions, it may not be legally required to disclose its dealings with Cerberus as a related party transaction. However, the alleged partnership with Cerberus raises concerns about Carvana’s business practices, particularly its reliance on selling auto loans, many of which are subprime. The company’s largest buyer, Ally Financial, has significantly reduced its purchases from Carvana, citing credit challenges in its retail auto loan book.
A recent survey from CarEdge found that 44% of loans for cars purchased since 2022 are underwater, indicating potential financial risks for Carvana. S&P data cited by Hindenburg also suggests that Carvana’s subprime loans have had a high increase in borrower extensions, raising comparisons to the housing bubble that led to the 2008 Financial Crisis. Despite these concerns, Carvana’s management remains focused on executing its business plan and achieving success in 2025, despite facing challenges from short sellers and financial critics. The future of Carvana remains uncertain as investors closely monitor developments related to the company’s financial practices and relationships with external parties like Cerberus.
